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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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VARLEN CORPORATION
(Name of Subject Company)
VARLEN CORPORATION
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.10 PER SHARE
(And Associated Preferred Share Purchase Rights)
(Title of Class of Securities)
922248 10 9
(CUSIP Number of Class of Securities)
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RAYMOND A. JEAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VARLEN CORPORATION
55 SHUMAN BOULEVARD,
P.O. BOX 3089
NAPERVILLE, ILLINOIS 60566-7089
(630) 420-0400
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
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WITH COPIES TO:
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Vicki L. Casmere, Esq. R. Scott Falk, Esq. Kevin G. Abrams, Esq.
Vice President, General Counsel & Kirkland & Ellis Richards, Layton & Finger
Secretary 200 East Randolph Drive One Rodney Square
Varlen Corporation Chicago, Illinois 60601 P. O. Box 551
55 Shuman Boulevard (312) 861-2000 Wilmington, Delaware 19899
P.O. Box 3089 (302) 658-6541
Naperville, Illinois 60566-7089
(630) 420-0400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Varlen Corporation (the "Company" or
"Varlen"). The address of the principal executive offices of the Company is 55
Shuman Boulevard, P.O. Box 3089, Naperville, Illinois 60566-7089. The title of
the class of equity securities to which this statement relates is the Company's
common stock, par value $.10 per share (the "Common Stock"), including the
associated Preferred Share Purchase Rights (the "Rights," and together with the
Common Stock, the "Shares") issued pursuant to the Rights Agreement dated as of
June 17, 1996, as amended on September 28, 1998 and May 25, 1999 (the "Rights
Agreement"), between the Company and Harris Trust and Savings Bank (the "Rights
Agent").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the cash tender offer by Track Acquisition
Incorporated ("Track"), a Delaware corporation and a wholly-owned subsidiary of
Amsted Industries Incorporated ("Amsted"), to purchase all outstanding Shares of
Common Stock at a price of $35.00 per Share, net to the seller in cash, on the
terms and subject to the conditions set forth in the Offer to Purchase, dated
May 24, 1999, and in the related Letter of Transmittal (which together
constitute the "Amsted Offer"). The Amsted Offer is disclosed in a Tender Offer
Statement on Schedule 14D-1, dated May 24, 1999 (the "Schedule 14D-1"), as filed
with the Securities and Exchange Commission (the "Commission"). The Offer to
Purchase states that the principal executive offices of Track and Amsted are
located at 205 N. Michigan Ave., 44th Floor, Chicago, Illinois 60601.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in Annex A attached hereto and incorporated by
reference herein. Certain contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its executive officers,
directors or affiliates also are described on pages 4-16 of the Company's Proxy
Statement dated April 16, 1999, which is filed as Exhibit 1 to this Schedule
14D-9 and incorporated by reference herein. Except as incorporated by reference
herein or as set forth herein or in Item 4 below, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings, or any actual or potential conflicts of
interest, between the Company or its affiliates and (i) the Company and its
executive officers, directors or affiliates or (ii) Amsted, Track or their
respective executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Background; Recommendation of the Board of Directors
Prior to May 4, 1999, the Company had no material contacts with Amsted. On
May 4, 1999, Arthur W. Goetschel, Amsted's Chairman, President and Chief
Executive Officer, telephoned Raymond A. Jean, Varlen's President and Chief
Executive Officer, who was unavailable at the time. Mr. Goetschel asked that Mr.
Jean return his call. Soon thereafter on May 4, Mr. Jean called Mr. Goetschel.
Mr. Goetschel for the first time expressed Amsted's interest in acquiring the
Company and stated that he would be sending Mr. Jean a letter describing
Amsted's interest. Shortly thereafter, Mr. Jean received by facsimile a copy of
the following letter from Mr. Goetschel dated May 4, 1999 (the "Amsted
Expression of Interest"):
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May 4, 1999
Mr. Raymond A. Jean
President and Chief Executive Officer
Varlen Corporation
55 Shuman Blvd.
P.O. Box 3089
Naperville, IL 60566-7089
Dear Mr. Jean:
We have been following your company with interest for years. We recognize
Varlen as a company with truly unique products and positions in the same
important customer markets as our own. The purpose of this letter is to
express our interest in meeting with you to discuss a strategic business
combination that will benefit both companies, shareholders and employees.
This letter summarizes some of the issues presented in our phone
conversation earlier today.
Based on a review of public information, we believe that we can propose to
purchase all of Varlen's outstanding shares for cash at a price of at
least $33.00 per share conditioned upon a satisfactory due diligence
review. We would like an opportunity to conduct a brief, confidential and
non-invasive due diligence review to confirm the benefits of a business
combination. This review may enable us to uncover additional value in the
form of greater combination benefits. We have reviewed this transaction
with Salomon Smith Barney/Citibank, our financing sources, and we are
confident that we can consummate an all-cash transaction in a timely
manner without requiring a financing condition.
A combination of AMSTED and Varlen has compelling industrial logic and
strong potential for operating synergies. By integrating Varlen's bearings
and hydraulic cushioning products with our wheels, trucks and end of car
equipment, we can provide a product set to Class 1 railroads unmatched in
the industry. In our automotive and truck businesses, we should be able to
put together customer solutions unparalleled in the industry while
building substantial shareholder value.
While we know you are familiar with our company, we have enclosed
additional materials on AMSTED. AMSTED is one of the largest
employee-owned companies in the United States, with over $1.25 billion in
annual sales, over $160 million in EBITDA prior to ESOP contributions, and
minimal outstanding net debt. Since the employee stock ownership plan
acquired the company in March 1986, we have built over $1 billion in
shareholder value, a benefit shared by over 4,000 of our
employee/shareholders.
Coming from a publicly traded environment, we understand how empowering
employees with stock ownership has led to significant benefits for AMSTED.
Varlen's non-bargaining U.S. employees will share the benefits of employee
ownership as an additional employee benefit. We are proud of our record as
excellent partners in other business combinations, providing expanded
management opportunities, increased research and development, and improved
manufacturing and expansion capabilities. Varlen's decentralized operating
unit management style is very similar to AMSTED's, and I would look
forward to discussing with you the continuation of Varlen's management
team with AMSTED.
We are extremely serious about our proposal and we urge you to meet with
us at your earliest convenience. We are convinced that our proposal is in
the best interests of both companies' shareholders and other
constituencies. It is our desire to work together with you to reach an
agreement on a transaction that can be presented to Varlen's shareholders
as a joint effort of Varlen's and AMSTED's Boards of Directors.
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To move forward, we would like the opportunity to bring our advisors into
the process to conduct a due diligence review and negotiate a definitive
purchase agreement in a short time period. We look forward to your prompt
response. Our current proposal to explore a business combination on these
terms remains open only as long as our expression of interest remains
confidential.
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Sincerely,
/s/ ARTHUR W. GOETSCHEL
------------------------------------------------
Arthur W. Goetschel
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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Mr. Jean received an original copy of the Amsted Expression of Interest by
overnight courier on May 5, 1999.
On May 6, 1999, Mr. Goetschel telephoned Mr. Jean's office, but Mr. Jean was
traveling on business and was unavailable. Mr. Jean instructed his secretary to
return Mr. Goetschel's call and to inform Mr. Goetschel that Mr. Jean would
contact him early in the week of May 10, 1999.
On May 7, 1999, Mr. Goetschel left a message on Mr. Jean's voicemail in
which he stated that Amsted would contact the Company's Board of Directors (the
"Board") directly about the Amsted Expression of Interest if Mr. Jean did not
return his call that afternoon. Mr. Jean returned Mr. Goetschel's call later
that day. During the resulting conversation, Mr. Goetschel expressed his strong
desire to begin negotiating a potential transaction between Amsted and the
Company. Mr. Jean explained to Mr. Goetschel that he was in the process of
informing the Board of the Amsted Expression of Interest and was scheduled to
discuss the Amsted matter later that day with Board members. Mr. Jean further
stated that the Board would need until the week of May 10, 1999 to consider,
evaluate and respond to the Amsted Expression of Interest.
On May 10, 1999, Mr. Jean called Mr. Goetschel to explain that he was in the
process of organizing a special meeting of the Board for May 14, 1999. Mr.
Goetschel responded in substance that the Company was taking too much time and
that Amsted was ready to disclose publicly the Amsted Expression of Interest.
Mr. Jean assured Mr. Goetschel that the Company was moving expeditiously to
consider the Amsted Expression of Interest and that the Company would respond to
the Amsted Expression of Interest in a timely fashion.
Notwithstanding Mr. Jean's assurances, and less than a week after first
notifying Mr. Jean of Amsted's interest in acquiring the Company, Mr. Goetschel
prepared and delivered to each member of the Board by overnight courier a copy
of the following letter dated May 10, 1999:
May 10, 1999
[Name and address of director]
Dear [director]:
This letter is being sent to all Varlen directors to request consideration
by the Varlen Board of Directors of AMSTED's proposal to acquire Varlen at
a significant premium. Based on a review of public documents, we are
prepared to pay at least $33.00 per share conditioned upon a satisfactory
due diligence review. We believe a due diligence review may enable us to
uncover additional value in the form of greater combination benefits.
Although we made an initial approach to Mr. Jean on May 4, we have been
unsuccessful in scheduling a meeting. We were informed by Mr. Jean that
your Board of Directors would convene
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to discuss this matter this past weekend, but we have been subsequently
notified that you would not be meeting promptly. We believe this proposal
merits serious consideration of your Board of Directors.
We are prepared to work with our financial and legal advisors to perform
due diligence and negotiate a definitive agreement within a short period
of time. We look forward to a prompt response. While we would prefer to
work directly with Varlen's management and Board of Directors to reach
agreement on a transaction, we believe our proposal would be well received
by your shareholders. We will notify your shareholders of this proposal
Wednesday evening unless the company meets with us before then with the
purpose of negotiating a transaction.
This transaction offers a significant premium and immediate liquidity to
the shareholders, and offers a price above Varlen's all-time high. In
addition, other constituencies stand to benefit significantly including
employees and customers. We have reviewed this transaction with our
advisors and lenders, Salomon Smith Barney/Citibank, and are confident
that we can consummate an all-cash transaction in a timely manner without
requiring a financing condition.
We would like to provide you an overview of AMSTED, our financial
capacity, the benefits to a business combination, and our approach to
completing a transaction. AMSTED is a leading industrial company serving
the railroad, construction and building, and industrial markets (including
heavy truck). We are a strong proponent of consolidations where we believe
we can better serve our customers' needs by providing more complete
solutions.
In a combination with Varlen, the industrial logic and synergistic
opportunities are particularly compelling. Although AMSTED and Varlen are
not direct competitors, AMSTED and Varlen should be able to put together
customer solutions unmatched in the railroad, automotive and truck
industries while building substantial shareholder value. For example, by
coordinating Varlen's bearings and hydraulic cushioning products with our
wheels, trucks and end of car equipment, we can provide a product set to
Class 1 railroads unmatched in the industry.
While you may be familiar with our company, we have enclosed materials on
AMSTED. AMSTED is one of the largest employee-owned companies in the
United States, with over $1.25 billion in annual sales, over $160 million
in EBITDA prior to ESOP contributions, and minimal outstanding net debt.
Since the employee stock ownership plan acquired the company in March
1986, we have built over $1 billion in shareholder value, a benefit shared
by over 4,000 of our employees.
Coming from a publicly traded environment, we understand how empowering
employees with stock ownership has led to significant benefits for AMSTED.
Varlen's non-bargaining employees will share the benefits of employee
ownership. We are proud of our record as excellent partners in other
business combinations, providing expanded management opportunities,
increased research and development and improved manufacturing and
expansion capabilities.
We are convinced that our proposal is in the best interests of both
companies' shareholders and other constituencies, and that it is feasible.
It is our desire to work together with Varlen to reach an agreement on a
transaction that can be presented to Varlen's shareholders as a joint
effort of Varlen's and AMSTED's Boards of Directors.
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Sincerely,
/s/ ARTHUR W. GOETSCHEL
------------------------------------------------
Arthur W. Goetschel
</TABLE>
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On May 11, 1999, after receiving Mr. Goetschel's May 10 letter, Mr. Jean
telephoned Mr. Goetschel and stated that a special Board meeting had been
scheduled definitively for May 14, 1999 to consider the Amsted Expression of
Interest. Mr. Goetschel responded in substance (i) that the pace of the
Company's response to the Amsted Expression of Interest was unsatisfactory, (ii)
that Amsted intended to achieve a business combination with the Company one way
or another, (iii) that $33 per share was a full and fair price for the Company,
(iv) that Amsted would like to be granted the exclusive right to conduct due
diligence regarding the $33 per share price in the Amsted Expression of
Interest, (v) that Amsted wanted to begin negotiations regarding a potential
business combination immediately, and (vi) that Amsted wanted an answer to the
Amsted Expression of Interest or Amsted would publicly disclose the Amsted
Expression of Interest on the evening of May 12, 1999. Mr. Jean explained to Mr.
Goetschel that, in light of the special Board meeting scheduled for May 14, the
Company would be unable to respond on the schedule Amsted requested. Mr. Jean
asked that Amsted not make any public announcement of the Amsted Expression of
Interest in light of the Board's scheduled meeting. Mr. Goetschel responded that
he would consider Mr. Jean's request and inform Mr. Jean on May 12, 1999 whether
Amsted intended to publicly disclose the Amsted Expression of Interest.
On May 12, 1999, Mr. Goetschel called Mr. Jean and stated that Amsted had
determined not to publicly disclose the Amsted Expression of Interest on the
condition that Mr. Jean contact Mr. Goetschel following the May 14 Board
meeting. Mr. Jean agreed. Mr. Jean cautioned Mr. Goetschel that he could make no
predictions regarding the Board's reaction to the Amsted Expression of Interest.
Mr. Jean further explained that he could not commit to negotiate a potential
business combination with Amsted following the May 14 Board meeting.
On May 14, 1999, the Board held a special meeting to consider and discuss
the Amsted Expression of Interest and to receive preliminary advice from the
Company's financial advisor, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), and the Company's legal advisors, Richards, Layton & Finger and
Kirkland & Ellis. During the meeting, the Board directed the Company's financial
and legal advisors to leave the Board meeting and meet with Amsted's financial
advisor, Salomon Smith Barney ("Salomon"), and legal advisor, Winston & Strawn,
for the purpose of responding to issues raised by the Amsted Expression of
Interest. Mr. Jean called Mr. Goetschel and told him that the Company's advisors
were on their way to meet with Amsted's advisors. In the meeting among advisors,
the Company's advisors proposed to Amsted's advisors that Amsted and the Company
enter into a confidentiality and standstill agreement containing a 90-day
restriction on certain control-related activities and a two-year restriction on
disclosing confidential information about the Company, in exchange for which the
Company would accommodate Amsted's request to conduct limited business due
diligence on the Company. Amsted's advisors stated that Amsted was unwilling to
execute the proposed confidentiality and standstill agreement. The advisors
agreed, however, to continue discussions with their respective clients and with
each other over the weekend of May 15-16, 1999, in an effort to agree on a
process for continuing discussions that both the Company and Amsted would find
acceptable. The Company's advisors at no time indicated to Amsted's advisors
that the Board would be discussing the possible commencement of negotiations
with Amsted or that such negotiations had been authorized.
On May 15, 1999, the Board held a special meeting to discuss the substance
and outcome of the May 14 meeting among the advisors. On Sunday, May 16, the
Board held a special meeting to receive updated information from the Company's
advisors and to consider further the Amsted Expression of Interest.
On May 17, 1999, the Company's legal advisors informed Amsted's legal
counsel by telephone that the Company would be prepared by 6:00 p.m. on May 19,
1999 to continue the advisors' discussions regarding a mutually acceptable
process for exploring issues raised by the Amsted Expression of Interest. After
the advisors' telephone call, the Board held a brief telephonic meeting to
receive a report from its advisors regarding the call with Amsted's counsel. The
Board scheduled a second meeting for that evening to give further consideration
to the Amsted Expression of Interest. At approximately 6:00 p.m. on May 17,
1999,
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Mr. Richard L. Wellek, Chairman of the Company, received a call from a reporter
at the WALL STREET JOURNAL. The reporter informed Mr. Wellek that Amsted had
disclosed to the WALL STREET JOURNAL that Amsted would announce the next morning
its intention to commence the Amsted Offer. Mr. Wellek declined to comment. At
the time of the call from the WALL STREET JOURNAL, no representative of Amsted
had contacted the Company to communicate its intention to commence the Amsted
Offer. Mr. Wellek communicated the substance of the call from the WALL STREET
JOURNAL to the Company's directors in a special Board meeting that evening. Also
during the meeting, the Board received additional advice from its legal advisors
and Morgan Stanley. The Board then authorized its advisors to begin exploring
potential strategic alternatives to assist the Board in making an informed
decision regarding the Amsted Expression of Interest and the anticipated Amsted
Offer.
On May 18, 1999, Amsted publicly announced the Amsted Offer. Also on May 18,
after the release of Amsted's public announcement, Mr. Jean received by courier
the following letter:
May 17, 1999
Mr. Raymond A. Jean
President and Chief Executive Officer
Varlen Corporation
55 Shuman Blvd.
Naperville, Illinois 60566-7089
Dear Mr. Jean:
I deeply regret that Varlen has determined not to engage in negotiations
with AMSTED toward a combination of the two companies. AMSTED continues to
believe that such a combination would be to the benefit of shareholders of
both companies. Therefore, AMSTED will announce tomorrow that it intends
to commence a tender offer for all shares of Varlen at a price of $35 per
share. A copy of the press release is attached hereto as Exhibit A.
AMSTED believes that this offer is fully priced and represents a
significant premium to Varlen shareholders over any historical market
price. AMSTED understands that Varlen and its advisors may disagree as to
the adequacy of this price.
Therefore, AMSTED urges Varlen to permit Varlen shareholders to express
their own decision with respect to the offer. The only effective way to
empower Varlen shareholders to make their own decision is for the Varlen
board of directors to (i) repeal the rights plan and (ii) waive the
provisions of Section203 of the Delaware Corporation Law, subject, in each
case, to a purchase by AMSTED of Varlen stock at a price of $35 per share.
Of course, we remain open to negotiate a consensual transaction.
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Very truly yours,
/s/ ARTHUR W. GOETSCHEL
------------------------------------------------
Arthur W. Goetschel
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On May 18, 1999, the Company issued a press release urging all of its
stockholders to take no action with respect to the Amsted Offer and any related
activities until the Board could make a recommendation on the Amsted Offer.
On May 24, 1999, Amsted and Track filed the Schedule 14D-1 with the
Commission and formally commenced the Amsted Offer.
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On May 25, 1999, the Board met and reviewed the Amsted Offer with the
Company's financial and legal advisors. At this meeting, the Board received a
report from management on and discussed extensively management's assessment of
the Company's performance. In addition, Morgan Stanley presented its preliminary
financial analysis of the Amsted Offer, discussed management's views of the
Company's performance, and reviewed its preliminary analysis of various
potential strategic alternatives available to the Company. Presentations also
were made by the Company's legal advisors. The Board authorized management and
the Company's advisors to continue and to expand upon the process of exploring
the Company's potential strategic alternatives, including the making of
preliminary inquiries and holding preliminary discussions with third parties.
The Board also amended the Rights Agreement to provide that the distribution of
the Rights in connection with the Amsted Offer shall not take place until the
earlier of (i) ten (10) days after the Stock Acquisition Date, as defined in the
Rights Agreement, or (ii) a date specified by the Board.
On June 4, 1999, the Board held a meeting at which the Board again reviewed
the Amsted Offer and its terms and conditions with the Company's management and
its financial and legal advisors. The Board received an updated report from
management on and discussed extensively management's assessment of the Company's
performance. In addition, Morgan Stanley presented its financial analysis of the
Amsted Offer, discussed management's views of the Company's projected
performance, reviewed various potential strategic alternatives available to the
Company, reported on the status of the process of exploring the Company's
potential strategic alternatives, and presented its oral and written opinion to
the effect that the Amsted Offer is inadequate, from a financial point of view,
to the holders of Shares, other than Amsted and its affiliates. Presentations
also were made by the Company's legal advisors. After the presentations and
discussion by the Board, the Board unanimously determined that the Amsted Offer
was inadequate and not in the best interests of the Company's stockholders. The
Board also unanimously determined that the Company should continue to explore
its strategic alternatives, including a possible merger, sale or
recapitalization of the Company, which alternatives could include negotiations
with interested parties, including Amsted. The Board believes that, in the
context of exploring the Company's strategic alternatives, interested parties
will recognize the strong business potential of the Company.
THE COMPANY'S BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE AMSTED
OFFER IS INADEQUATE AND IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. ACCORDINGLY, THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS REJECT THE AMSTED OFFER AND NOT
TENDER THEIR SHARES PURSUANT TO THE AMSTED OFFER.
A copy of the letter to the Company's stockholders communicating the
recommendation of the Board and the press release relating thereto are filed as
Exhibits 2 and 3 hereto and are incorporated by reference herein.
(b) Reasons for the Recommendation
In reaching the conclusions and recommendations described in Item 4(a)
above, the Board considered a number of factors, including without limitation
the following:
(i) The Board's familiarity with, and management's view of, the
Company's business, financial condition, results of operations, current
business strategy and future prospects, the nature of the markets in which
the Company operates, including their growth prospects, the Company's
position in such markets and the historical and current market prices for
the Shares.
(ii) Presentations by the Company's management relating to the Company's
financial performance and future prospects.
(iii) Presentations by Morgan Stanley concerning the Company and the
financial aspects of the Amsted Expression of Interest and the Amsted Offer.
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(iv) The oral and written opinions of Morgan Stanley that as of the date
of such opinions the Amsted Offer is inadequate, from a financial point of
view, to the holders of Shares, other than Amsted and its affiliates. A copy
of such opinion setting forth assumptions made and matters considered and
limitations set forth by Morgan Stanley is included as Annex B hereto and
should be read in its entirety.
(v) Information provided by Morgan Stanley relating to the preliminary
exploratory discussions conducted by the Company and its financial advisors
with a number of parties as part of the evaluation of the Amsted Offer.
(vi) The Board's determination to explore strategic and financial
alternatives which have the potential of resulting in a value for the Shares
in excess of the Amsted Offer.
(vii) The Board's belief that the Amsted Offer does not reflect the
current value inherent in the Company, the long-term value achievable by the
Company as an independent entity or the value that could be achieved by the
Company's exploration of strategic alternatives.
(viii) The Company's seven consecutive year-over-year quarterly
improvements in sales, operating profits and earnings, including record
financial performance in the first quarter of 1999. During the first quarter
of 1999, compared to the prior-year period, sales increased 17.4 percent on
strong demand and increased penetration by the Company's vehicular products
and railroad products segments; operating profits grew 21.1 percent on
higher sales and solid operating leverage; and net earnings rose 31.6
percent.
(ix) The Board's recognition of the Company's excellent financial
condition, results of operations and business performance, including the
Company's ability to outperform its key end markets of automotive,
heavy-duty truck/trailer and railroad products, the Company's numerous
international opportunities and the Company's superior product programs with
significant sales potential.
(x) The conditionality of the Amsted Offer, including the conditions
that (A) there be tendered and not withdrawn a number of shares of Common
Stock which represents at least a majority of the shares outstanding on a
fully diluted basis, (B) the Company redeem the Rights or that Amsted
otherwise be satisfied in its sole discretion that the Rights are invalid or
inapplicable to the Amsted Offer and Amsted's proposed second-step merger,
(C) Amsted be satisfied in its sole discretion that, after consummation of
the Amsted Offer, the restrictions on "Business Combinations" contained in
Section 203 of the DGCL will not apply to Amsted's proposed second-step
merger, (D) any waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and under any foreign laws that are
applicable to the purchase of shares of Common Stock pursuant to the Amsted
Offer expire or be terminated, (E) there be no amendment to or proposal to
amend the certificate of incorporation or bylaws of the Company or any of
its subsidiaries and (F) there be no change that has or might have a
materially adverse effect on the business, properties, assets, operations,
licenses or franchises, results of operations or prospects of the Company or
any of its subsidiaries, as well as a considerable number of further
conditions which are subject to Amsted's sole judgment or permit termination
of the Amsted Offer for developments which the Company considers immaterial.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Amsted Offer, the
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Morgan Stanley as its financial advisor with
respect to the Amsted Offer and other matters arising in connection therewith,
including assisting the Company in evaluating and
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exploring potential strategic alternatives in light of the Amsted Expression of
Interest and the Amsted Offer. Pursuant to the agreement between the Company and
Morgan Stanley dated May 11, 1999, the Company has paid Morgan Stanley a
financial advisory fee of $1,000,000 and a fee of $500,000 in connection with
the delivery of one or more financial opinion letters (both of which fees shall
be credited against any transaction fees described in the next two succeeding
sentences). The Company has also agreed to pay Morgan Stanley, upon consummation
of an Acquisition Transaction (as hereinafter defined) an incentive fee based on
the Aggregate Value (as hereinafter defined) of an Acquisition Transaction. The
Company and Morgan Stanley have also agreed that if no Acquisition Transaction
has been consummated prior to May 11, 2000, the Company shall pay Morgan Stanley
a fee of $4,000,000. "Aggregate Value" is defined, for a merger, consolidation
or other business combination or sale of shares pursuant to an Acquisition
Transaction, as the value of the consideration paid per share of Common Stock
multiplied by the total number of shares of Common Stock (including the number
of shares which would be outstanding upon exercise of any options, convertible
debt, convertible preferred stock or warrants) of the Company, plus, without
duplication, the value of any funded term or bank debt, capital lease, and
preferred stock obligations (excluding any premium thereon) of the Company
assumed, retired or defeased in connection with the transaction. An "Acquisition
Transaction" is defined as any merger, consolidation, reorganization or other
business combination pursuant to which the business of the Company is combined
with that of another entity and the equity holders of the Company prior to such
merger, consolidation, reorganization or other business combination do not own
50% or more of the equity securities of the combined entity resulting from such
merger, consolidation, reorganization or other business combination; the
acquisition of a majority of the voting stock of the Company by way of a tender
or exchange offer, negotiated or open market purchase or otherwise; the
acquisition of all or substantially all of the assets of the Company; any change
in the composition of the Board during the 12 months following Morgan Stanley's
engagement, such that a majority of the Board ceases to be comprised of current
directors; or the acquisition of the Company, whether effected in one
transaction or a series of transactions.
Morgan Stanley's engagement may be terminated by either the Company or
Morgan Stanley at any time, with or without cause; provided, however, if the
Company terminates Morgan Stanley's engagement, Morgan Stanley nevertheless will
be entitled to the fees described above in the event that at any time within 18
months after such termination, an Acquisition Transaction or one of certain
alternative transactions is entered into.
The Company also has agreed to reimburse Morgan Stanley for its reasonable
out-of-pocket expenses and to indemnify it against certain expenses and
liabilities if incurred in connection with its engagement, including liabilities
arising under the federal securities laws.
The Company has retained MacKenzie Partners, Inc. ("MacKenzie Partners") to
assist the Company in connection with its communications with stockholders with
respect to, and to provide other services to the Company in connection with, the
Amsted Offer. The Company will pay MacKenzie Partners reasonable and customary
compensation for its services and will reimburse MacKenzie Partners for the
reasonable out-of-pocket expenses incurred in connection therewith. The Company
has agreed to indemnify MacKenzie Partners against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
The Company has retained Abernathy MacGregor Frank ("Abernathy MacGregor")
as its public relations advisor in connection with the Amsted Offer and related
matters. The Company will pay Abernathy MacGregor reasonable and customary
compensation for its services and will reimburse Abernathy MacGregor for the
reasonable out-of-pocket expenses incurred in connection therewith. The Company
has agreed to indemnify Abernathy MacGregor against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
Except as described above, neither the Company, nor any person acting on its
behalf, currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Amsted Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth herein or pursuant to plans, agreements or arrangements
described in Annex A or Exhibit 1 attached hereto and incorporated by
reference herein, to the knowledge of the Company there have been no
transactions in shares which were effected during the past 60 days by the
Company, or to the knowledge of the Company, by any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the knowledge of the Company, its executive officers, directors,
affiliates and subsidiaries do not currently intend to tender, pursuant to
the Amsted Offer, any shares of Common Stock which are held of record or are
beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a)-(b) As part of its evaluation of the Amsted Offer, the Board has
considered and reviewed the feasibility and desirability of exploring a variety
of possible alternative transactions to the Amsted Offer. As an alternative to
the Amsted Offer, the Company may undertake negotiations which relate to or
could result in (i) a sale of the Company, (ii) a purchase, sale or transfer of
a material amount of assets by the Company or any of its subsidiaries or a sale
or issuance of voting stock, rights or other securities of the Company or any of
its subsidiaries, (iii) a tender or exchange offer for, or open market or
privately negotiated purchases or other acquisitions of securities by or of, the
Company, (iv) a material change in the present capitalization of the Company, or
(v) a business combination or joint venture involving the Company or any of its
subsidiaries. The Company has held preliminary discussions and will continue to
engage in discussions or negotiations with a number of parties concerning
possible strategic alternatives.
The Board has determined that disclosure at this time with respect to
possible strategic alternatives or the parties thereto, and the possible terms
of any other transactions or proposals of the type referred to above in this
Item 7, might jeopardize the commencement or continuation of any discussions or
negotiations that the Company may conduct. The Board accordingly has instructed
management and its advisors not to disclose the terms of such discussions or
negotiations or the parties thereto until such agreement has been reached or as
otherwise may be required by law.
There can be no assurance that any of the foregoing will result in any
transaction being recommended to the Board, that any transaction that may be
recommended to the Board will be authorized or consummated, or that a
transaction other than those described herein will not be proposed, authorized
or consummated. The commencement or continuation of any of the foregoing may
also be dependent upon the future actions of Amsted with respect to the Amsted
Offer. The proposal, authorization, announcement or consummation of any
transaction of the type referred to in this Item 7 could adversely affect or
result in withdrawal of the Amsted Offer.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
LITIGATION. Between May 19, 1999 and May 25, 1999, four purported class
action lawsuits were filed by alleged stockholders of the Company against the
Company and the Board in the Delaware Court of Chancery, styled GOLDPLATE
HOLDINGS, INC. v. ERNEST H. LORCH, ET AL., C.A. No. 17172; JOHN MCMULLEN v.
ERNEST H. LORCH, ET AL., C.A. No. 17180; DOMINIC GALLUSCIO v. ERNEST H. LORCH,
ET AL., C.A. No. 17181; and BRETT STOVERN v. ERNEST H. LORCH, ET AL., C.A. No.
17182. The class actions set forth substantially similar allegations of
purported misconduct by the Board in allegedly failing to promptly negotiate
with Amsted, thereby failing to maximize stockholder value and allegedly
depriving the Company's stockholders of an opportunity to obtain a substantial
premium for their shares. The stockholder plaintiffs seek an order from the
Court (i) declaring the actions to be class actions on behalf of all the
Company's stockholders; (ii) compelling the Board to carry out its fiduciary
duties to the Company's stockholders; (iii) directing the Board to deploy the
Rights Agreement in a manner that will produce the best value maximizing
transaction for the Company's
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stockholders; (iv) requiring the Company's directors to account for all damages
suffered by the Company's stockholders; (v) awarding the plaintiffs attorneys'
fees and costs; and (vi) granting such other relief as may be just and proper.
The respective complaints are filed as Exhibits 4 through 7 hereto and are
incorporated by reference herein.
THE RIGHTS AGREEMENT. On June 17, 1996, the Board declared a dividend of
one Right for each outstanding share of Common Stock. The dividend was payable
at the close of business on July 15, 1996 (the "Record Date") to the
stockholders of record on July 1, 1996. Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $1.00 per share, of the Company
(the "Preferred Stock") at a price of $72 per one one-thousandth of a share of
Preferred Stock (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in the Rights Agreement.
On May 25, 1999, the Board approved an amendment to the Rights Agreement to
provide that until the earlier to occur of (i) the tenth day after a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) such date as may
be determined by action of the Board prior to such time as any person or group
of affiliated persons becomes an Acquiring Person following the commencement of,
or announcement of an intention to make, a tender offer (including the Amsted
Offer) or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
shares of Common Stock (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of the Record Date, by such Common Stock
certificate.
The Rights Agreement provides that, until the Distribution Date (or earlier
expiration of the Rights), the Rights will be transferred with and only with the
Common Stock. Until the Distribution Date (or earlier expiration of the Rights),
the surrender for transfer of any certificates for shares of Common Stock will
also constitute the transfer of the Rights associated with the shares of Common
Stock represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on June 16, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights is subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for or purchase Preferred Stock at a price, or
securities convertible into Preferred Stock with a conversion price, less than
the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights is subject to adjustment in the event of a
stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of $100 per share
but will be entitled to an aggregate dividend of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the
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Company, the holders of the Preferred Stock will be entitled to a minimum
preferential payment of $100 per share (plus any accrued but unpaid dividends)
but will be entitled to an aggregate payment of 1000 times the payment made per
share of Common Stock. Each share of Preferred Stock will have 1000 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which outstanding shares of Common Stock
are converted or exchanged, each share of Preferred Stock will be entitled to
receive 1000 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.
In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provisions will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive upon the exercise of a Right that number of
shares of common stock of the person with whom the Company has engaged in the
foregoing transaction (or its parent) that at the time of such transaction have
a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or the
acquisition by such Acquiring Person of 50% or more of the outstanding shares of
Common Stock, the Board may exchange the Rights (other than Rights owned by such
Acquiring Person which will have become void), in whole or in part, for shares
of Common Stock or Preferred Stock (or a series of the Company's preferred stock
having equivalent rights, preferences and privileges), at an exchange ratio of
one share of Common Stock, or a fractional share of Preferred Stock (or other
preferred stock) equivalent in value thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof an adjustment in cash will be made based on the current market price of
the Preferred Stock or the Common Stock.
At any time prior to the time an Acquiring Person becomes such, the Board
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
For so long as the Rights are then redeemable, the Company may, except with
respect to the redemption price, amend the Rights Agreement in any manner. After
the Rights are no longer redeemable, the Company may, except with respect to the
redemption price, amend the Rights Agreement in any manner that does not
adversely affect the interests of holders of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
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A copy of the Rights Agreement (excluding Amendment No. 2 thereto) has been
filed with the Commission as Exhibit 11 to this Schedule 14D-9. Amendment No. 2
to the Rights Agreement, dated May 25, 1999, will be filed by the Company with
the Commission on Form 8-A/A. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
DELAWARE TAKEOVER STATUTE. As described in the Amsted Offer, Section 203 of
the General Corporation Law of the State of Delaware (the "Delaware Takeover
Statute"), may have the effect of significantly delaying Amsted's ability to
acquire the entire equity interest in the Company.
In general, the Delaware Takeover Statute prevents an "Interested
Stockholder" (defined generally as a person that is the "owner" (as defined in
the Delaware Takeover Statute) of 15% or more of a corporation's outstanding
voting stock from engaging in a "Business Combination" (defined as a variety of
transactions, including mergers, as set forth in the second following paragraph)
with a Delaware corporation for three years following the date such person
became an Interested Stockholder unless: (i) before such person became an
Interested Stockholder, the board of directors of the corporation approved the
transaction in which the Interested Stockholder became an Interested Stockholder
or approved the Business Combination; (ii) upon consummation of the transaction
which resulted in the Interested Stockholder becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers and employee stock ownership plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer), or (iii) following the transaction in which such person became an
Interested Stockholder, the Business Combination is (x) approved by the board of
directors of the corporation and (y) authorized at a meeting of stockholders by
an affirmative vote of the holders of two-thirds of the outstanding voting stock
of the corporation not owned by the Interested Stockholder.
Under the Delaware Takeover Statute, the restrictions described above do not
apply to, among other things, (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by the
Delaware Takeover Statute, (ii) the corporation, by action of its board of
directors, adopts an amendment to its by-laws within 90 days of February 2,
1988, the effective date of the Delaware Takeover Statute, expressly electing
not to be governed by the Delaware Takeover Statute, which amendment may not be
further amended by the board of directors, (iii) the corporation, by action of
its stockholders, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by the Delaware Takeover Statute,
provided that, in addition to any other vote required by law, such amendment to
the certificate of incorporation or by-laws must be approved by the affirmative
vote of a majority of the shares entitled to vote (such an amendment would not
be effective until 12 months after the adoption of such amendment and shall not
apply to any Business Combination between the corporation and any person who
became an Interested Stockholder of the corporation on or prior to the date of
such adoption), (iv) the corporation does not have a class of voting stock that
is (x) listed on a national securities exchange, (y) authorized for quotation on
an interdealer quotation system of a registered national securities association,
or (z) held of record by more than 2,000 stockholders, unless any of the
foregoing results from action taken, directly or indirectly, by an Interested
Stockholder or from a transaction in which a person becomes an Interested
Stockholder, or (v) a stockholder becomes an Interested Stockholder
"inadvertently" and thereafter divests itself of a sufficient number of shares
so that such stockholder ceases to be an Interested Stockholder. The Delaware
Takeover Statute would also not apply to certain Business Combinations proposed
by an Interested Stockholder following the announcement or notification of one
of certain extraordinary transactions involving the corporation and the person
who had not been an Interested Stockholder during the three years preceding the
date of the Business Combination or who became an Interested Stockholder with
the approval of a majority of the corporation's Board of Directors.
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The Delaware Takeover Statute provides that during the three-year period
following the date a person becomes an Interested Stockholder, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (i) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of either the aggregate market value of all of the assets
of the corporation or the aggregate market value of all of the outstanding stock
of the corporation, (ii) any transaction which results in the issuance or
transfer by the corporation or by certain subsidiaries thereof of any stock of
the corporation to the Interested Stockholder, subject to certain exceptions,
(iii) any transaction involving the corporation or any majority-owned subsidiary
thereof which has the effect of increasing the proportionate share of the stock
of any class or series, or securities convertible into the stock of any class or
series, of the corporation or any such subsidiary which is owned by the
Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares of stock not caused, directly or indirectly, by the Interested
Stockholder), or (iv) any receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder of such corporation) of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
Unless Amsted acquires a number of shares of Common Stock pursuant to the
Amsted Offer sufficient to satisfy the 85% requirement of the Delaware Takeover
Statute or unless the provisions of clause (iii) of the second preceding
paragraph or clauses (i) or (iii) of the third preceding paragraph are complied
with, Amsted would be unable to effect a merger with the Company for a period of
three years from the consummation of the Amsted Offer and would be prevented
from engaging in certain transactions by the Delaware Takeover Statute.
If Amsted acquires a number of shares of Common Stock pursuant to the Amsted
Offer sufficient to satisfy the 85% requirement of the Delaware Takeover
Statute, Amsted would be able to effect a merger with the Company without any
application of the three-year waiting period. There can be no assurance that
Amsted will be able to acquire such number of shares of Common Stock.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
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Exhibit 1 The Company's Proxy Statement, dated April 16, 1999.
Exhibit 2 Letter to Varlen Stockholders, dated June 7, 1999.
Exhibit 3 Press Release issued by Varlen on June 7, 1999.
Exhibit 4 Complaint in Goldplate Holdings, Inc. v. Ernest H. Lorch, et al., C.A. No.
17172, filed in the Court of Chancery of the State of Delaware on May 19,
1999.
Exhibit 5 Complaint in John McMullen v. Ernest H. Lorch, et. al., C.A. No. 17180, filed in
the Court of Chancery of the State of Delaware on May 24, 1999.
Exhibit 6 Complaint in Dominic Galluscio v. Ernest H. Lorch, et. al., C.A. No. 17181,
filed in the Court of Chancery of the State of Delaware on May 25, 1999.
Exhibit 7 Complaint in Brett Stovern v. Ernest H. Lorch, et. al., C.A. No. 17172, filed in
the Court of Chancery of the State of Delaware on May 25, 1999.
Exhibit 8 Opinion of Morgan Stanley dated June 4, 1999 (incorporated by reference to Annex
B to the Company's Schedule 14D-9, filed with the Commission on June 7, 1999).
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Exhibit 9 Restated Certificate of Incorporation as amended through October 1, 1996
(incorporated herein by reference to Exhibit 4.2 of the Registrant's Form S-3
Registration Statement as filed on August 19, 1997), as further amended on May
27, 1998 (incorporated to herein by reference to Exhibit (3)(i) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 1,
1998).
Exhibit By-laws, as amended through November 20, 1998 (incorporated herein by reference
10 to Exhibit (3)(ii) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998).
Exhibit Rights Agreement dated as of June 17, 1996 (incorporated herein by reference to
11 Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 3, 1996) as amended on September 28, 1998 (incorporated
herein by reference to Exhibit (4)(a) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1998).
Exhibit Varlen's 1980 Incentive Stock Option Plan, as amended (incorporated herein by
12 reference to Exhibit (10)(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1989) and as further amended on March 26,
1990 (incorporated herein by reference to Exhibit (10)(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1990).
Exhibit Varlen's 1993 Directors Incentive Stock Grant Plan adopted May 25, 1993
13 (incorporated herein by reference to Exhibit (10)(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1994), as amended
May 29, 1997 (incorporated herein by reference to Exhibit (10)(l) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 3,
1997).
Exhibit Varlen's 1993 Deferred Incentive Stock Purchase Plan adopted May 25, 1993
14 (incorporated herein by reference to Exhibit (10)(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1994) as amended on
February 3, 1997 (incorporated herein by reference to Exhibit (10)(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1997) as amended on February 2, 1998 (incorporated herein by reference to
Exhibit (10)(k) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 2, 1998).
Exhibit Varlen Corporation Excess Benefit Plan Trust Agreement dated December 1, 1994
15 (incorporated herein by reference to Exhibit (10)(n) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1995).
Exhibit Form of Indemnification Agreement dated as of June 17, 1996 (incorporated herein
16 by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 3, 1996).
Exhibit Deferred long-term incentive grant to Raymond A. Jean dated February 2, 1998
17 (incorporated herein by reference to Exhibit (10)(o) to the Company's Annual
Report on form 10-K for the fiscal year ended January 31, 1998).
Exhibit Deferred long-term incentive grant to Richard A. Nunemaker dated February 2,
18 1998 (incorporated herein by reference to Exhibit (10)(p) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998).
Exhibit Consulting Agreement dated January 31, 1999 between Richard L. Wellek and Varlen
19 Corporation (incorporated by reference to Exhibit 10(q) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1999).
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Exhibit Varlen Corporation Profit Sharing and Retirement Savings Plan as amended May 1,
20 1999 (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Varlen Corporation 1989 Incentive Stock Option Plan as amended May 14, 1999
21 (incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Varlen Corporation Excess Benefits Plan as amended and restated May 14, 1999
22 (incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Varlen Corporation Supplemental Executive Retirement Plan as amended and
23 restated May 14, 1999 (incorporated by reference to Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1,
1999, filed with the Commission on June 4, 1999).
Exhibit Varlen Corporation 1993 Incentive Stock Option Plan as amended May 14, 1999
24 (incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Varlen Corporation 1998 Contingent Stock Award Plan as amended May 14, 1999
25 (incorporated by reference to Exhibit 10(f) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Varlen Corporation 1998 Long-Term Equity Incentive Plan as amended May 14, 1999
26 (incorporated by reference to Exhibit 10(g) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit William Rotenberry Employment Agreement dated November 9, 1998 (incorporated by
27 reference to Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Raymond Jean Change in Control Agreement dated April 8, 1999 (incorporated by
28 reference to Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Raymond Jean Amendment of Change in Control Agreement dated May 14, 1999
29 (incorporated by reference to Exhibit 10(j) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Richard Nunemaker Change in Control Agreement dated May 14, 1999 (incorporated
30 by reference to Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit George Hoffman Change in Control Agreement dated May 14, 1999 (incorporated by
31 reference to Exhibit 10(l) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Vicki Casmere Change in Control Agreement dated May 14, 1999 (incorporated by
32 reference to Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
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Exhibit Raymond Jean SERP Plan Agreement dated April 8, 1999 (incorporated by reference
33 to Exhibit 10(n) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 1, 1999, filed with the Commission on June 4, 1999).
Exhibit Raymond Jean SERP Plan Gross-Up Letter dated May 14, 1999 (incorporated by
34 reference to Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Richard Nunemaker SERP Plan Amendment dated May 14, 1999 (incorporated by
35 reference to Exhibit 10(p) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Richard Nunemaker SERP Plan Gross-Up Letter dated May 14, 1999 (incorporated by
36 reference to Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999).
Exhibit Richard Wellek Amendment to Consulting Agreement dated May 14, 1999
37 (incorporated by reference to Exhibit 10(r) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999).
Exhibit Raymond Jean Consent dated May 14, 1999 (incorporated by reference to Exhibit
38 10(s) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999).
Exhibit Richard Nunemaker Consent dated May 14, 1999 (incorporated by reference to
39 Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 1, 1999, filed with the Commission on June 4, 1999).
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
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VARLEN CORPORATION
By: /s/ RAYMOND A. JEAN
-----------------------------------------
Raymond A. Jean
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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Dated: June 7, 1999
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ANNEX A
CONTRACTS AND ARRANGEMENTS BETWEEN THE COMPANY AND ITS OFFICERS AND DIRECTORS
From time to time the Company enters into various compensation, incentive
and indemnification agreements, arrangements and plans with its executive
officers and directors in the ordinary course of business. Those agreements,
arrangements and plans that existed prior to the Company's distribution of its
Proxy Statement relating to the 1999 Annual Meeting of Stockholders, dated April
16, 1999 (the "Proxy Statement"), are described in the Proxy Statement and/or
the Company's public filings with the Commission. The Proxy Statement is
attached as Exhibit 1 to this Schedule 14D-9. The following additional
agreements, arrangements and plans, or amendments thereto, were entered into
after the Proxy Statement was finalized:
1. Varlen Corporation Profit Sharing and Retirement Savings Plan, as
amended May 1, 1999. This Plan was amended to correct typographical
errors in the Plan previously filed with the Commission and is
incorporated by reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 1, 1999, filed
with the Commission on June 4, 1999.
2. Varlen Corporation 1989 Incentive Stock Option Plan, as amended May 14,
1999. This Plan was amended to include a revised definition of "Change
in Control" and provide that options granted pursuant thereto after May
14, 1999 will be entitled to accelerated vesting only if the optionee
is terminated from employment within one year following a Change in
Control (as defined). This amended Plan is incorporated by reference to
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
3. Varlen Corporation Excess Benefits Plan, as amended and restated May
14, 1999. This Plan was amended to permit participation by employees of
recently acquired subsidiaries, modify certain defined terms to make
such terms consistent with those contained in other compensatory
benefit plans of the Company, modify the vesting provisions, and make
certain other technical adjustments. This amended Plan is incorporated
by reference to Exhibit 10(c) to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended May 1, 1999, filed with the
Commission on June 4, 1999.
4. Varlen Corporation Supplemental Executive Retirement Plan, as amended
and restated May 14, 1999. This Plan was amended to add a concept of
"new participants" in the plan and clarify the benefits that accrue for
"new participants" and "old participants"; clarify that awards under
the Company's Contingent Stock Award Plan are not an offset against a
benefit under the SERP Plan; modify certain terms to make such terms
consistent with those contained in other compensatory benefit plans of
the Company; provide additional discretion to the Compensation
Committee of the Board; and make certain other technical adjustments.
This amended Plan is incorporated by reference to Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
May 1, 1999, filed with the Commission on June 4, 1999.
5. Varlen Corporation 1993 Incentive Stock Option Plan, as amended May 14,
1999. This Plan was amended to include a revised definition of "Change
in Control" and provide that options granted pursuant thereto after May
14, 1999 will be entitled to accelerated vesting only if the optionee
is terminated from employment within one year following a Change in
Control (as defined). This amended Plan is incorporated by reference to
Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
6. Varlen Corporation 1998 Contingent Stock Award Plan, as amended May 14,
1999. This Plan was amended to include new vesting and forfeiture
provisions and is incorporated by reference
A-1
<PAGE>
to Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
7. Varlen Corporation 1998 Long-Term Equity Incentive Plan, as amended May
14, 1999. This Plan was amended to include consistent definitions of
"Cause" and "Change in Control" and is incorporated by reference to
Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
8. Employment Agreement, dated November 9, 1998, by and between Varlen
Corporation and William J. Rotenberry. The agreement provides Mr.
Rotenberry with certain severance benefits in the event of his
termination other than due to death, permanent disability, retirement
or cause or if Mr. Rotenberry terminates his employment due to certain
demotions or reductions in pay or reassignment more than 50 miles from
his current location. This agreement is incorporated by reference to
Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
9. Change in Control Agreement, dated as of April 8, 1999, by and between
Varlen Corporation and Raymond A. Jean. This agreement provides for
certain payments to Mr. Jean in the event his employment with the
Company is terminated without cause after a change in control of the
Company. This agreement is incorporated by reference to Exhibit 10(i)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
10. Amendment, dated May 14, 1999, to Change in Control Agreement, dated as
of April 8, 1999, by and between Varlen Corporation and Raymond A.
Jean. This amendment clarifies that the April 8 change in control
agreement supersedes any prior change in control agreement between the
Company and Mr. Jean. This amendment is incorporated by reference to
Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1999, filed with the Commission on June 4,
1999.
11. Change in Control Agreement, dated as of May 14, 1999, by and between
Varlen Corporation and Richard A. Nunemaker. This agreement provides
for certain payments to Mr. Nunemaker in the event his employment with
the Company is terminated without cause after a change in control of
the Company. This agreement is incorporated by reference to Exhibit
10(k) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 1, 1999, filed with the Commission on June 4, 1999.
12. Change in Control Agreement, dated as of May 14, 1999, by and between
Varlen Corporation and George W. Hoffman. This agreement provides for
certain payments to Mr. Hoffman in the event his employment with the
Company is terminated without cause after a change in control of the
Company. This agreement is incorporated by reference to Exhibit 10(l)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
13. Change in Control Agreement, dated as of May 14, 1999, by and between
Varlen Corporation and Vicki L. Casmere. This agreement provides for
certain payments to Ms. Casmere in the event her employment with the
Company is terminated without cause after a change in control of the
Company. This agreement is incorporated by reference to Exhibit 10(m)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
14. Letter Agreement, dated April 8, 1999, between Varlen Corporation and
Mr. Raymond A. Jean. This letter agreement states that Mr. Jean will be
regarded as having achieved 15 years of service, and will be entitled
to all benefits to which he would be entitled if he were age 62 on the
date of the letter agreement, under the Company's Supplemental
Executive Retirement Plan.
A-2
<PAGE>
This letter agreement is incorporated by reference to Exhibit 10(n) to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
15. Letter Agreement, dated May 14, 1999, between Varlen Corporation and
Mr. Raymond A. Jean. This letter agreement states that the Company will
bear the cost of any amounts determined to payable or required to be
paid pursuant to Section 280G or Section 4999 of the Internal Revenue
Code by Mr. Jean as a result of any payments to Mr. Jean under the
Company's Supplemental Executive Retirement Plan. This letter agreement
is incorporated by reference to Exhibit 10(o) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1999,
filed with the Commission on June 4, 1999.
16. Letter Agreement, dated May 14, 1999, between Varlen Corporation and
Mr. Richard A. Nunemaker. This letter agreement states that Mr.
Nunemaker will be regarded as having achieved 15 years of service, and
will be entitled to all benefits to which he would be entitled if he
were age 62 on the date of the letter agreement, under the Company's
Supplemental Executive Retirement Plan. This letter agreement is
incorporated by reference to Exhibit 10(p) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 1, 1999, filed
with the Commission on June 4, 1999.
17. Letter Agreement, dated May 14, 1999, between Varlen Corporation and
Mr. Richard A. Nunemaker. This letter agreement states that the Company
will bear the cost of any amounts determined to payable or required to
be paid pursuant to Section 280G or Section 4999 of the Internal
Revenue Code by Mr. Nunemaker as a result of any payments to Mr.
Nunemaker under the Company's Supplemental Executive Retirement Plan.
This letter agreement is incorporated by reference to Exhibit 10(q) to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
18. First Amendment to Consulting Agreement, effective May 14, 1999,
between Varlen Corporation and Richard L. Wellek. The First Amendment
to Consulting Agreement amends the consulting agreement described in
the Proxy Statement by modifying the fee arrangements provision of the
agreement. This amendment is incorporated by reference to Exhibit 10(r)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 1, 1999, filed with the Commission on June 4, 1999.
19. Consent, dated May 14, 1999, of Ray Jean, relating to the amendment of
the Varlen Corporation 1998 Contingent Stock Award Plan. This consent
relates to the effect of such amendment on the shares of contingent
stock awarded to Mr. Jean pursuant to such plan. This consent is
incorporated by reference to Exhibit 10(s) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 1, 1999, filed
with the Commission on June 4, 1999.
20. Consent, dated May 14, 1999, of Richard A. Nunemaker, relating to the
amendment of the Varlen Corporation 1998 Contingent Stock Award Plan.
This consent relates to the effect of such amendment on the shares of
contingent stock awarded to Mr. Nunemaker pursuant to such plan. This
consent is incorporated by reference to Exhibit 10(t) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1999,
filed with the Commission on June 4, 1999.
The Company's Bylaws and Restated Certificate of Incorporation contain
provisions indemnifying and limiting the liability of its officers and directors
for certain actions taken in their capacities as such. Article VII, Section 4 of
the Company's Bylaws and Article EIGHTH of the Company's Restated Certificate of
Incorporation provide that the Company shall, to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL"), indemnify all
persons whom it has the power to indemnify pursuant thereto. The Company has
entered into written indemnification agreements with its officers and
A-3
<PAGE>
directors whereby the Company has agreed to indemnify and advance expenses to
such persons to the fullest extent permitted by applicable law. The Company has
obtained a directors and officers liability insurance policy which insures such
persons against loss arising from certain claims made by reason of their being
directors or officers of the Company.
Article 102 of the DGCL and Article NINTH of the Company's Restated
Certificate of Incorporation permit the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director except in certain situations including the
breach of a director's duty of loyalty or acts or omissions not in good faith.
Section 145(c) of the DGCL provides for "mandatory indemnification" to the
extent that a present or former director or officer of a corporation has been
successful on the merits or otherwise in the defense of any proceeding, or in
defense of any claim, issue or matter therein, against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
with such proceeding. Section 145(e) of the DGCL provides that expenses
(including attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative, or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall be ultimately determined
that he or she is not entitled to be indemnified by the corporation as
authorized in such section.
A-4
<PAGE>
ANNEX B
MORGAN STANLEY DEAN WITTER
ONE FINANCIAL PLACE
440 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60605
(312) 706-4000
June 4, 1999
Board of Directors
Varlen Corporation
55 Shuman Boulevard
P.O. Box 3089
Naperville, IL 60566-7089
Members of the Board:
We understand that on May 24, 1999, Track Acquisition Incorporated ("Track"), a
subsidiary of Amsted Industries Incorporated ("Amsted"), commenced a tender
offer to purchase all of the outstanding shares of Common Stock, par value $0.10
per share, including the associated preferred share purchase rights (the "Common
Stock"), of Varlen Corporation ("Varlen" or the "Company"), other than shares of
Common Stock owned by Amsted and its affiliates, at a price of $35.00 per share
net to the seller in cash upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated May 24, 1999 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Amsted Offer").
The terms of the Amsted Offer are more fully set forth in the Schedule 14D-1
(the "Schedule 14D-1") filed by Track and Amsted with the Securities and
Exchange Commission on May 24, 1999.
You have asked for our opinion as to whether the Amsted Offer is adequate from a
financial point of view to the holders of Common Stock other than Amsted and its
affiliates.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) reviewed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects and business strategy of the Company with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
B-1
<PAGE>
Varlen Corporation MORGAN STANLEY DEAN WITTER
June 4, 1999
Page - 2
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in preliminary exploratory discussions among
representatives of the Company and certain third parties and their
legal and financial advisors;
(ix) reviewed the Offer to Purchase, the Schedule 14D-1 and certain related
documents; and
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the Company's financial projections, we have assumed
that they have been reasonably prepared on bases reflecting management's best
currently available estimates and judgments of the future financial performance
of the Company. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the Amsted Offer, or otherwise
required, with the Securities and Exchange Commission. This opinion is not
intended to be and shall not constitute a recommendation to any holder of Common
Stock as to whether to tender shares of Common Stock pursuant to the Amsted
Offer.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Amsted Offer is inadequate from a financial point of view to the
holders of Common Stock other than Amsted and its affiliates.
<TABLE>
<S> <C> <C>
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ F.J. OELERICH III
---------------------------------------------
Francis J. Oelerich III
Managing Director
</TABLE>
B-2
<PAGE>
VARLEN CORPORATION
55 SHUMAN BOULEVARD
P.O. BOX 3089
NAPERVILLE, ILLINOIS 60566-7089
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999
-------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Varlen
Corporation, a Delaware corporation (the "Company"), will be held at the
Radisson Hotel Lisle-Naperville, 3000 Warrenville Road, Lisle, Illinois 60532 on
Wednesday, May 26, 1999, at 10:00 A.M. (local time), for the following purposes:
1. To elect a Board of Directors.
2. To transact such other and further business as may properly come before
the meeting or any adjournment or adjournments thereof.
Common stockholders of record at the close of business on April 1, 1999 are
entitled to notice of and to vote at the meeting. A complete list of such
stockholders is open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company at 55 Shuman Boulevard, Naperville, Illinois 60566-7089.
A copy of the Company's Annual Report for the fiscal year ended January 31,
1999 is enclosed herewith.
By Order of the Board of Directors,
VICKI L. CASMERE,
SECRETARY
Dated: April 16, 1999
STOCKHOLDERS ARE URGED TO FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF
YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF MAILED
IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS REQUIRED. THE
PROMPT RETURN OF YOUR PROXY WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.
<PAGE>
VARLEN CORPORATION
55 SHUMAN BOULEVARD
P.O. BOX 3089
NAPERVILLE, ILLINOIS 60566-7089
--------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 1999
-------------
April 16, 1999
To the Stockholders:
This Proxy Statement is furnished to you in connection with the solicitation
by the Board of Directors of Varlen Corporation, a Delaware corporation (the
"Company"), of Proxies in the accompanying form to be used at the Annual Meeting
of Stockholders to be held at the Radisson Hotel Lisle-Naperville, 3000
Warrenville Road, Lisle, Illinois 60532 on Wednesday, May 26, 1999, at 10:00
A.M. (local time) and at any subsequent time which may be necessary by the
adjournment thereof.
If you were a holder of record of Common Stock of the Company at the close
of business on April 1, 1999, you are entitled to vote at the meeting. If,
however, you cannot be present in person, a form of Proxy is enclosed which the
Board of Directors of the Company requests you to execute and return as soon as
possible. You can, of course, revoke your Proxy at any time before it is voted,
if you so desire, either in person at the meeting or by delivery of a duly
executed written statement to that effect to the Secretary of the Company.
The Company is paying all costs of the solicitation of Proxies, including
the expenses of printing and mailing to its stockholders this Proxy Statement
and the accompanying Notice of Annual Meeting of Stockholders and form of Proxy.
Officers or employees of the Company may solicit Proxies in person, or by mail,
telegram or telephone, but such persons will receive no compensation for such
work, other than their normal compensation as such officers or employees.
At the close of business on April 1, 1999, 17,010,934 shares of Common Stock
were outstanding and are entitled to vote at the Annual Meeting. Each
outstanding share is entitled to one vote. This Proxy Statement and the enclosed
Proxy are first being mailed to the stockholders of the Company on or about
April 16, 1999.
PROXIES AND VOTING
The persons named in the accompanying form of Proxy intend to vote Proxies
for the election of the nominees for director described herein unless authority
to vote for directors is withheld. In the event that any nominee at the time of
election shall be unable or unwilling to serve or is otherwise unavailable for
election (which contingency is not now contemplated or foreseen), and in
consequence other nominees shall be nominated, the persons named in the form of
Proxy shall have the discretion and authority to vote or to refrain from voting
in accordance with their judgment on such other nominations.
The presence in person or by proxy of a majority of the shares of Common
Stock outstanding and entitled to vote at the meeting is required for a quorum.
If a quorum is present, those nominees receiving a plurality of the votes cast
will be elected. Accordingly, neither shares withheld in the election of
directors
<PAGE>
nor abstentions will count as negative votes. The other matters being submitted
to stockholders at the meeting require the affirmative vote of a majority of the
shares voted (including abstention votes) for approval.
Shares held by brokers and other stockholder nominees sometimes are voted on
certain matters but not others. This can occur, for example, when the broker
does not have the discretionary authority to vote shares of Common Stock and is
instructed by the beneficial owner thereof to vote on a particular matter but is
not instructed on one or more others. These are known as "non-voted" shares.
With respect to Proposal 1, "non-voted" shares will not be counted as a vote.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Directors are to be elected to hold office until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
qualified or until resignation, removal, disqualification or death as provided
in the Bylaws of the Company. The nominees for director, together with certain
information furnished to the Company by each nominee (see also "Certain
Relationships and Related Transactions" and "Security Ownership of Certain
Beneficial Owners and Management" herein), are set forth below:
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY
OWNED AS OF
APRIL 1, 1999(1)
----------------------------
NAME, AGE AND DIRECTOR NUMBER PERCENT
POSITION WITH COMPANY SINCE OF SHARES OF CLASS
- ---------------------------------------------------------------------- -------- ----------------- --------
<S> <C> <C> <C>
Ernest H. Lorch, 66 .................................................. 1984 10,102 shares(2) 0.1%
Senior Chairman
Richard L. Wellek, 60 ................................................ 1983 223,033 shares(3) 1.3%
Chairman
Raymond A. Jean, 56 .................................................. 1997 156,357 shares(4) .9%
President and Chief Executive Officer
L. William Miles, 65 ................................................. 1993 4,053 shares(2) *
Greg A. Rosenbaum, 46 ................................................ 1985 16,946 shares(2) 0.1%
Joseph J. Ross, 53 ................................................... 1994 5,642 shares(2) *
Theodore A. Ruppert, 68 .............................................. 1971 985,671 shares(5) 5.8%
</TABLE>
- ------------------------
* The number of shares of Common Stock beneficially owned is less than .1% of
class.
(1) As of April 1, 1999, all directors, nominees and officers of the Company as
a group (11 persons) owned beneficially 1,539,402 shares of the Company's
Common Stock (8.9% of class), 564,979 of which were held directly (including
shares which are deemed to be beneficially owned solely because of the
existence of currently exercisable options to acquire such shares, shares
held by sole trustees and shares held as a custodian) and 974,423 of which
were held subject to shared voting and dispositive power.
(2) Held directly.
2
<PAGE>
(3) Of such shares, 169,306 are deemed to be beneficially owned by Mr. Wellek
because he is the sole trustee of a trust of which he is the sole
beneficiary and 53,727 are deemed to be beneficially owned solely because of
the existence of currently exercisable options to acquire such shares.
(4) Of such shares, 46,983 are deemed to be beneficially owned by Mr. Jean
because he is the sole trustee of a trust of which he is the sole
beneficiary, 107,724 are deemed to be beneficially owned by Mr. Jean solely
because of the existence of currently exercisable options to acquire such
shares and 1,650 are deemed to be beneficially owned because they are held
as a custodian for the benefit of his daughter.
(5) Of such shares, 11,248 are held directly and 974,423 are deemed to be
beneficially owned by Mr. Ruppert solely because he is one of the trustees
of several trusts in which he and members of his family have an interest.
Mr. Lorch is Of Counsel to Whitman Breed Abbott & Morgan, attorneys, a
position he has held since January 1993. He retired as Chairman and Chief
Executive Officer of The Dyson-Kissner-Moran Corporation ("DKM"), a private
investment company, in December 1992, a position he held since January 1990. DKM
owned approximately 30% of the Common Stock of the Company prior to the
Company's purchase of all of the Company's shares owned by DKM in January 1993.
Mr. Lorch was President of DKM from June 1984 to January 1990. Mr. Lorch is also
a director of Tyler Corporation. Tyler Corporation, headquartered in Dallas,
Texas, is a provider of technology, software data warehousing, and electronic
document management systems and services for local governments and other
enterprises. Tyler also operates in the retail automotive parts business.
Mr. Wellek has been Chairman of the Company since May 1997. He retired from
employment with the Company as its Chief Executive Officer in January 1999, and
previously served as President, and as Chief Executive Officer of the Company
since December 1983.
Mr. Jean was elected President and Chief Executive Officer of the Company in
February 1999. He was elected President and Chief Operating Officer in May 1997.
He was Executive Vice President and Chief Operating Officer of the Company since
1993. Mr. Jean joined the Company in 1988 as Group Vice President.
Mr. Miles is Vice President for Administration at Fairfield University,
Connecticut, a position he has held since July 1992. From February 1988 to June
1992 he was Senior Vice President of Call Interactive, a subsidiary of American
Express Co., and a provider of interactive telephone services. Mr. Miles is also
a director of Bouton Corporation, a manufacturer of safety glasses.
Mr. Rosenbaum has been President of Palisades Associates, Inc., a merchant
banking and consulting company, since August 1989. Mr. Rosenbaum is a director
of McLaren/Hart, Inc., an environmental services consulting firm to large
corporations, including, among others, the Company. Mr. Rosenbaum owns less than
a 5% interest in McLaren/Hart, Inc.
Mr. Ross is Chairman, President and Chief Executive Officer of Federal
Signal Corporation, a manufacturer of public safety, signaling and
communications equipment. He has been Chairman of Federal Signal since February
1990 and has served as its President and Chief Executive Officer since December
1987.
Mr. Ruppert is the sole proprietor of Village Development Partnership, a
real estate, manufacturing and oil development holding company, prior to which
he was, a general partner, for more than the previous five years; Chairman,
Chief Executive Officer, President and a director of Glaize Development
Corporation, a real estate developer; and a director of Pioneer Bank & Trust
Company. (See "Security Ownership of Certain Beneficial Owners and Management"
herein.)
3
<PAGE>
During the fiscal year ended January 31, 1999 ("1998"), the Board of
Directors held eleven meetings. The Board has an Audit Committee consisting of
Messrs. Ross and Ruppert; a Compensation Committee consisting of Messrs. Lorch,
Miles and Rosenbaum and a Nominating and Organization Committee consisting of
Messrs. Ross, Lorch and Wellek. The primary function of the Audit Committee,
which during 1998 held two meetings, is to review the scope and results of each
year's annual independent audit, establish the scope and review the results of
the internal audit function and review the Company's internal control
procedures. The primary functions of the Compensation Committee, which during
1998 held three meetings, are to determine the compensation of the Company's
executive officers and operating unit presidents and to administer the Company's
stock option and purchase plans. The primary function of the Nominating and
Organization Committee, which held one meeting during 1998, is to advise the
board on board membership, committee structure and Chief Executive Officer
succession. Each director attended more than 85% of the meetings of the Board of
Directors and committees on which he served during 1998.
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY
The Executive Compensation program is administered by the Compensation
Committee of the Board of Directors, which is composed of a majority of
nonemployee directors who are all outside directors, and is designed to attract,
retain and motivate executive personnel whose sustained performance will
increase stockholder value through successful achievement of short-term
corporate goals and long-term Company objectives. The compensation program is
directly integrated with the achievement of the Company's strategic business
plans. The following program components have been designed to meet these
objectives:
BASE SALARY
The base salary program is designed to pay for individual performance within
a structure that is internally equitable and externally competitive with
comparable companies. Base salaries are a function of:
(1) the relative value and potential impact of each position on the
performance of the Company. Value is measured by responsibilities,
complexity and scope of markets, sales volume, technological requirements,
business strategy, etc. The evaluation process results in the assignment of
a position grade;
(2) salary ranges, assigned to each pay grade, which establish a
competitive position with median salary compensation levels at comparable
companies;
(3) individual performance, within established base salary ranges.
The program is designed to provide executives who continue to meet
performance expectations with base compensation that is competitive with median
market rates at comparable companies. The Company compares base salary, bonus,
and salary ranges of its executives to those of similar positions in comparable
companies as reported in a salary survey conducted by an independent consulting
firm. Independent surveys are also used to develop a merit increase budget.
Within this budget, executives may or may not receive a base salary increase
dependent upon performance in the prior year and their position in their
respective salary ranges. The amount of increase will vary with individual
performance against established performance objectives.
4
<PAGE>
ANNUAL INCENTIVE -- A target bonus is paid when both financial performance
(E.G., consolidated return on invested capital/return on net assets employed)
and individual performance objectives are met. Financial goals are directly
related to the strategic business plan. Individual performance goals are value
added, representing achievements of annually agreed upon objectives within the
control of the executive beyond normal position expectations.
If both objectives are not met, the bonus will be reduced. If performance is
below the minimum threshold for both objectives, there will be no bonus.
Similarly, if performance exceeds the objectives, a higher bonus will be paid,
subject to a cap.
LONG-TERM CONSISTENCY BONUS -- An additional compensation opportunity is
directly correlated with consistent achievement of annual incentive goals over a
multi-year period. This bonus is contingent upon achievement of financial and
individual performance objectives for more than one year of a three year period.
If minimum financial objectives are not met, no consistency bonus is paid.
CONTINGENT STOCK AWARD -- As a result of a 1997 study by an independent
compensation consulting firm completed at the request of the Compensation
Committee, it was determined that the long-term compensation for certain
executives needed to be enhanced for competitive reasons. The Compensation
Committee and the Board of Directors approved the implementation of a plan tied
directly to the improvement in the price of the Company's Common Stock over a
targeted period, usually five years.
STOCK OPTIONS -- This long-term compensation rewards management for
long-term strategic direction and enhancement of stockholder value. Options also
promote recruitment and retention of key management personnel by providing
meaningful incentives dependent upon successful corporate performance. Stock
options are awarded based upon an overall evaluation of each eligible employee.
Outstanding options held are not considered in the award of new options.
1993 DEFERRED INCENTIVE STOCK PURCHASE PLAN -- The "Stock Purchase Plan" was
adopted by the Board of Directors of the Company on March 29, 1993, and became
effective when it was approved by stockholders on May 25, 1993. The Purchase
Plan provides for the offer to selected officers and other key employees of
rights to purchase Common Stock of the Company. Within thirty days after receipt
of an offer, each offeree seeking to participate in the Purchase Plan must
execute a deferred purchase right agreement evidencing the offeree's commitment
to purchase a specified number of shares of Common Stock of the Company at a
specified price at the expiration of five years. Payments are made quarterly. A
purchase right shall also entitle the offeree to receive a cash bonus equivalent
to the amount of dividends which would have been payable on the number of shares
the offeree committed to purchase under the purchase right, when and as
dividends are paid on the Common Stock.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER ("CEO") COMPENSATION
As discussed previously, the Company's executive compensation program,
including that of the CEO, is based on business performance, both short-term
(base salary and annual incentive bonus) and long-term (long-term consistency
bonus, contingent stock, stock options and Stock Purchase Plan). The
compensation of the CEO serves as a model for this pay-for-performance program.
Sales and earnings for the 1998 fiscal year were the highest in Company history.
Net sales rose 23.8% to a record $646,672,000 from $522,254,000 in 1997. Net
earnings increased 60.8% in 1998 to $41,242,000 or $2.38 per diluted share--
both records. Earnings before interest, taxes, depreciation and amortization was
at a record $103,964,000 in 1998 or a 31% increase over the $79,257,000 in 1997.
All corporate financial goals were exceeded. The Company's book value per share
increased to an all time high of $14.18, or 19% above the $11.94 in 1997
5
<PAGE>
and $10.18 in 1996, after restatement for stock splits and dividends. In
addition, significant steps were taken to advance Varlen's long-term strategy.
Mr. Wellek's action and leadership played a key role in the achievement of
the Company's strategic objectives and strong performance. Varlen is now
significantly larger, more international, and positioned for further growth. Of
his annual incentive, 75% was objectively determined based upon return on
invested capital, which was 14.2% in 1998 compared to 10.5% in 1997. The balance
of the annual incentive, 25%, was based upon non-financial goals. Achievement of
these non-financial goals included strategic, organizational and succession
planning. Mr. Wellek retired as the Company's Chief Executive Officer effective
January 30, 1999 after a successful transition of responsibilities to Raymond A.
Jean, who served as the Company's President and Chief Operating Officer. In
addition, Mr. Wellek qualified for a long-term consistency bonus based upon the
Company's performance over a multi-year period. Base salary adjustment for Mr.
Wellek was made using data provided by independent consultants and was based
upon the Company's larger size and international development, as well as his
performance.
OTHER MATTERS
The Revenue Reconciliation Act of 1993 limits the annual deduction a
publicly held corporation may take for certain types of compensation paid or
accrued with respect to certain executives to $1 million per year per executive
for taxable years beginning after December 31, 1993. The compensation paid to
its executives in 1998 was affected by the limitation on tax deductibility
primarily due to the vesting of Common Stock purchases made over the last five
years under the Company's Stock Purchase Plan. The Company annually reviews its
compensation plans in the context of the requirements for tax deductibility
under the rules. The Company intends that compensation realized upon the
exercise of an option or SAR granted under the Company's 1998 Long-Term Equity
Incentive Plan be regarded as "performance-based" under Section 162(m) of the
Internal Revenue Code and that such compensation be deductible by the Company
without regard to the limitation on tax deductibility imposed by Section 162(m).
Respectfully submitted
Greg A. Rosenbaum (Chairman)
Ernest H. Lorch
L. William Miles
April 8, 1999
6
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's four executive officers who earned
compensation during fiscal 1998, based on salary and bonus earned during 1998.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION SECURITIES LONG-
UNDERLYING TERM
FISCAL ---------------------- STOCK INCENTIVE ALL OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) PAYOUTS COMP.
- -------------------- -------------------- ------ ----------- -------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Wellek Chairman (13) 1998 $ 556,172 $382,500 -- $506,008(8) $124,314(3)
1997 443,332 337,500 18,750(12) 253,700(8) 105,677(3)
1996 405,828 307,582 18,563(12) 236,172(8) 95,783(3)
Raymond A. Jean President and CEO 1998 332,672 231,200 15,000 280,364(9) 75,750(4)
(14)
1997 290,992 201,280 15,000(12) 144,582(9) 71,067(4)
1996 263,328 175,028 14,438(12) 130,744(9) 53,544(4)
George W. Hoffman Vice President 1998 203,081 38,745 6,875 11,046(10) 22,416(5)
1997 198,880 63,180 6,563(12) 26,510(10) 19,702(5)
1996 187,229 28,723 8,250(12) 26,510(10) 20,806(5)
Richard A. Nunemaker VP Finance, CFO 1998 193,500 117,000 8,437 110,582(11) 41,976(6)
1997 184,667 111,600 8,438(12) 90,650(11) 42,816(6)
1996 176,750 106,800 8,250(12) 85,621(11) 33,059(6)
Vicki L. Casmere VP, General 1998 148,833 60,000 3,750 25,875 27,222(7)
Counsel and 1997 141,667 57,200 3,750(12) 10,220 20,000(7)
Secretary (15) 1996 112,566 45,000 4,125(12) 0 7,225(7)
</TABLE>
- --------------------------
(1) Reflects bonus earned during the fiscal year. All bonuses were paid during
the following fiscal year.
(2) Number of shares of Common Stock subject to options granted in 1998, 1997
and 1996, respectively.
(3) Consists of $16,000, $15,200 and $12,875 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $83,327, $77,929 and
$58,491 to the Company's Shadow 401(k) Plan; $0, $0 and $12,000 for services
as a director of the Company and $24,987, $12,548 and $12,417 in other
miscellaneous non-cash benefits, in 1998, 1997 and 1996.
(4) Consists of $16,000, $15,200 and $12,875 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $47,060, $42,296 and
$29,184 to the Company's Shadow 401(k) Plan; and $12,690, $13,571 and
$11,485 in other miscellaneous non-cash benefits, in 1998, 1997 and 1996.
(5) Consists of $8,800, $8,800 and $6,403 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $6,346, $3,707 and
$6,967 to the Company's Shadow 401(k) Plan; and $7,270, $7,195 and $7,436 in
other miscellaneous non-cash benefits, in 1998, 1997 and 1996.
(6) Consists of $16,000, $15,200 and $12,875 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $20,107, $20,722 and
$14,951 to the Company's Shadow 401(k) Plan; and $5,869, $6,894 and $5,233
in other miscellaneous non-cash benefits, in 1998, 1997 and 1996.
(7) Consists of $16,000, $15,200 and $2,869 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $5,442, $0 and $0 to
the Company's Shadow 401(k) Plan; and $5,780, $4,800 and $4,356 in other
miscellaneous non-cash benefits, in 1998, 1997 and 1996.
7
<PAGE>
(8) Includes $27,615, $66,275 and $66,275 in non-cash compensation earned under
the Stock Purchase Plan, $97,214, $0 and $0 in non-cash compensation earned
under the Contingent Stock Award Plan and $173,429, $0 and $0 in non-cash
compensation earned under a Deferred Cash Payment Grant in each of 1998,
1997 and 1996. The shares of Common Stock were paid out under the Stock
Purchase Plan in June 1998.
(9) Includes $16,569, $39,765 and $39,765 in non-cash compensation earned under
the Stock Purchase Plan, $41,300, $0 and $0 in non-cash compensation earned
under the Contingent Stock Award Plan and $102,000, $0 and $0 in non-cash
compensation earned under a Deferred Cash Payment Grant in each of 1998,
1997 and 1996. The shares of Common Stock were paid out under the Stock
Purchase Plan in June 1998.
(10) Includes $11,046, $26,510 and $26,510 in non-cash compensation earned under
the Stock Purchase Plan in each of 1998, 1997 and 1996. The shares of Common
Stock were paid out under the Stock Purchase Plan in June 1998.
(11) Includes $11,046, $26,510 and $26,510 in non-cash compensation earned under
the Stock Purchase Plan, $10,325, $0 and $0 in non-cash compensation earned
under the Contingent Stock Award Plan and $20,400, $0 and $0 in non-cash
compensation earned under a Deferred Cash Payment Grant in each of 1998,
1997 and 1996. The shares of Common Stock were paid out under the Stock
Purchase Plan in June 1998.
(12) Restated for the 5 for 4 stock split in the form of a stock dividend in
1998.
(13) Mr. Wellek retired from the Company in January 1999. The expiration of his
non-qualified options was extended to January 30, 2001. In addition, in
January 1999, the Board of Directors granted Mr. Wellek the right to have
his benefit under the Company's Supplemental Executive Retirement Plan
calculated as if he retired at age 62 rather than age 60 resulting in an
increase in his benefit of $3,926. See a discussion of the consulting
agreement and termination arrangements on page 13.
(14) Mr. Jean was appointed Chief Executive Officer in February 1999 and was
elected President in May 1997.
(15) Ms. Casmere was elected Vice President, General Counsel and Secretary of
the Company in April 1996.
SUMMARY OF LONG-TERM INCENTIVE PLANS
The following table presents information concerning compensation earned
under long-term incentive plans during the most recent fiscal year for the
Company's Chief Executive Officer and each of the Company's four executive
officers who earned compensation under long-term incentive plans during fiscal
1998.
8
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER
NON-STOCK
PERFORMANCE OR PRICE-BASED PLANS
NUMBER OF SHARES, OTHER PERIOD -------------------
UNITS OR OTHER UNTIL MATURATION DOLLAR VALUE OF
NAME RIGHTS(1) OR PAYOUT ESTIMATED PAYOUT
- ------------------------------------------------------ ----------------- ----------------- -------------------
<S> <C> <C> <C>
Richard L. Wellek
Contingent Stock Award Plan(2)(3).............. 1998 19,836 $ 97,214
Long-Term Consistency Bonus(6)................. 1998 207,750
Deferred Long-Term Incentive(7)................ 1998 Jan. 30, 1999 173,429
Raymond A. Jean
Contingent Stock Award Plan(2)(4).............. 1998 50,000 Feb. 2, 2003
Long-Term Consistency Bonus(6)................. 1998 120,495
Deferred Long-Term Incentive(7)................ 1998 April 7, 2002 425,000
George W. Hoffman
Long-Term Consistency Bonus(6)................. 1998 0
Richard A. Nunemaker
Contingent Stock Award Plan(2)(5).............. 1998 12,500 Feb. 2, 2003
Long-Term Consistency Bonus(6)................. 1998 68,811
Deferred Long-Term Incentive(7)................ 1998 April 7, 2002 85,000
Vicki L. Casmere
Long-Term Consistency Bonus(6)................. 1998 25,875
</TABLE>
- ------------------------
(1) These are 1998 Contingent Stock Award Plan awards which were granted on
February 2, 1998 and vest on February 2, 2003, except for Mr. Wellek's
awards, which will be paid out in 1999 based on his accrued award earnings
through his retirement date of January 30, 1999. These amounts were restated
for a 5 for 4 stock split in the form of a stock dividend in 1998.
(2) This compensation represents the amortization of the difference between the
award price at issuance and fair market value of stock at the date of grant
times the percentage of the award earned in fiscal 1998. See discussion of
the 1998 Contingent Stock Award Plan in the Executive Compensation section
of this Proxy Statement.
(3) Compensation earned under the Contingent Stock Award Plan was $97,214 in
1998, is included in Long-Term Compensation in the Summary Compensation
Table above and will be his total pay-out under the plan.
(4) Compensation earned under the Contingent Stock Award Plan was $41,300 in
1998 and is included in Long-Term Compensation in the Summary Compensation
Table above.
(5) Compensation earned under the Contingent Stock Award Plan was $10,325 in
1998 and is included in Long-Term Compensation in the Summary Compensation
Table above.
(6) Represents compensation under the Long-Term Consistency Bonus, which was
earned in 1998 and paid in 1999 and is included in Long-Term Compensation in
the Summary Compensation Table above. See additional discussion in the
Executive Compensation section of this Proxy Statement.
9
<PAGE>
(7) This deferred payment was granted in November of 1997 and is payable in
April of 2002 providing the executive is still an employee of the Company at
that time. The executive may, under certain circumstances, be entitled to a
pro-rata portion of this payment if he ceases to be an employee of the
Company prior to April of 2002. Mr. Wellek's amount presented is the payment
he will receive due to his retirement in January 1999.
DIRECTOR COMPENSATION
During 1997, the manner in which directors who are not employees of the
Company ("Nonemployee Directors") were paid was amended effective June 1, 1997.
Nonemployee Directors were previously paid $12,000 per year for their director
services which was increased to $18,000 per year effective June 1, 1997. The
Senior Chairman received $5,000 per year and each committee chairman received
$2,500 per year for serving in such capacity in addition to the director service
fee. Nonemployee Directors receive $750 per board of directors meeting attended
which increased to $1,000 effective June 1, 1997 ($250 per board of directors
meeting by telephone) and $750 per committee meeting attended which was
increased to $1,000 effective June 1, 1997 ($500 if the committee meeting is in
conjunction with a board of directors meeting). Nonemployee Directors also
receive an annual award of $12,000 of restricted Company Common Stock per year
granted as of the date of the Annual Meeting of Stockholders. Mr. Wellek, who
ceased to be an employee of the Company in January 1999, will receive $5,000 per
year for his services as Chairman in addition to the other customary payments as
a non-employee director, as noted above, beginning in fiscal 1999.
STOCK PERFORMANCE CHART
The Company has replaced the S&P 500 Index and the S&P Manufacturing and
Diversified Industry Group Index with the Russell 2000 Index and the Russell
2000 Automotive and Transportation Index as these indexes more accurately
represent the Company's peers. The Company became a member of the Russell 2000
Group of companies in 1998, and is a company included in these two Russell
indexes.
The following two charts compares the change in the value of $100 invested
in the Company's Common Stock with $100 invested in the S&P 500 Index and the
S&P Manufacturing and Diversified Industry Group Index during the five fiscal
years ended January 31, 1999 and against the Russell 2000 Index and the Russell
2000 Automotive and Transportation Index during the same time period. The
comparison assumes $100 was invested on January 31, 1994 in the Company's Common
Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
10
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL VALUE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P MANUFACTURING AND
DIVERSIFIED INDUSTRY GROUP
VARLEN CORPORATION S&P 500 INDEX INDEX
<S> <C> <C> <C>
Jan-94 $100.00 100.00 100.00
Jan-95 $92.38 100.52 99.97
Jan-96 $103.29 139.33 146.53
Jan-97 $91.73 175.94 193.96
Jan-98 $179.50 223.26 227.66
Jan-99 $218.71 295.79 269.56
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RUSSELL 2000 AUTO AND TRANSPORTATION
VARLEN CORPORATION RUSSELL 2000 INDEX INDEX
<S> <C> <C> <C>
Jan-94 $100.00 100.00 100.00
Jan-95 $92.38 93.99 91.20
Jan-96 $103.29 122.14 99.54
Jan-97 $91.73 145.28 119.72
Jan-98 $179.50 171.54 157.78
Jan-99 $218.71 172.12 156.86
</TABLE>
11
<PAGE>
OPTION GRANTS DURING 1998
The following table provides information related to options granted to the
named executive officers during 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
----------------------------------------------------------------------- STOCK PRICE APPRECIATION
NUMBER OF % OF TOTAL MARKET FOR
SECURITIES OPTIONS GRANTED PRICE ON OPTION TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE DATE OF EXPIRATION ---------------------------
NAME GRANTED(2) 1998 PRICE(3) GRANT DATE 0% 5% 10%
- ------------------------------ ------------------ --------------- -------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Wellek............. -- -- -- -- -- -- -- --
Raymond A. Jean............... 6,062 3.8% $29.73 $30.20 04/06/08 $ 2,849 $117,982 $294,619
8,938 5.6 27.33 30.20 04/06/08 25,649 195,386 455,796
George W. Hoffman............. 6,875 4.3 30.20 30.20 04/06/08 -- 130,574 330,901
Richard A. Nunemaker.......... 8,437 5.3 29.73 30.20 04/06/08 3,965 164,206 410,047
Vicki L. Casmere.............. 3,750 2.3 29.73 30.20 04/06/08 1,763 72,985 182,254
</TABLE>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions providing for termination
of the option following termination of employment, nontransferability or
vesting periods.
(2) Options become exercisable 20% after each of the first four years since
their issuance with all options exercisable after 4 1/2 years.
(3) The option exercise price may be paid in cash or by delivery of shares of
Common Stock owned either by the optionee prior to the exercise of the
option or, for certain options with the consent of the Compensation
Committee, by the optionee as a result of the exercise of the option.
OPTION EXERCISES DURING 1998 AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during 1998 and the number and value of options held at
fiscal year end. The Company does not have any stock appreciation rights as of
January 31, 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR
SHARES OPTIONS AT FISCAL YEAR END END(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Wellek (2)......... 132,407 $ 2,792,915 72,477 -- $ 1,056,351 $ --
Raymond A. Jean............... -- -- 97,250 41,559 1,687,985 376,009
George W. Hoffman............. 3,750 76,485 40,465 20,251 662,423 190,218
Richard A. Nunemaker.......... 3,285 76,446 29,534 23,313 452,021 210,228
Vicki L. Casmere.............. -- -- 2,400 9,225 33,699 75,562
</TABLE>
- ------------------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on January 31, 1999 was $24.00. Value is calculated on the
basis of the difference between the option exercise prices and $24.00
multiplied by the number of shares of Common Stock underlying the option.
12
<PAGE>
(2) Of these exercisable options, 18,750 must be exercised within 90 days after
Mr. Wellek's retirement on January 30, 1999. The remaining options expire as
to exercise on January 30, 2001.
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS
The Company has severance agreements with Messrs. Hoffman, Jean and
Nunemaker, which provide for payments to such executive officers in the event
their employment by the Company is terminated without cause (as defined) after a
"Change in Control" of the Company. Subject to the terms and conditions of these
agreements, such payments are to be made at the rate of the terminated executive
officer's base salary (including the average of annual cash bonuses for the
prior three years), on a monthly basis and for a period of two years, commencing
on the date of termination. For purposes of this agreement, "Change in Control"
means a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or any successor provision thereto, whether or not the Company is
then subject to such reporting requirement; provided, however, without limiting
the generality of the foregoing, a Change in Control shall be deemed to have
occurred if: (i) any Person or Group (as those terms are defined in Section
13(d) and 14(d) of the Exchange Act) is or becomes the record or "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of 20% or more of the securities of the Company entitled to vote generally in
the election of directors of the Company; or (ii) a reorganization, merger,
consolidation, complete liquidation or dissolution of the Company or the sale or
disposition of all or substantially all of the assets of the Company or other
similar transaction (in each case, other than pursuant to any bankruptcy,
insolvency or similar law) occurs; or (iii) a change occurs in the composition
of a majority of the board of directors of the Company as constituted on January
1, 1993, excluding any change where nomination of a successor director was
approved by at least a majority of those members who are members of the board on
January 1, 1993, or their successors if so approved for nomination by a majority
of the board.
CONSULTING AGREEMENT AND TERMINATION ARRANGEMENTS
Mr. Wellek will receive $250,000 per year until January 30, 2001 under a
Consulting Agreement with the Company under which Mr. Wellek agreed to provide
services and not compete with the Company; these fees are not intended as
payments for services as a director. In addition, the Compensation Committee of
the Board of Directors agreed to extend the expiration of three previously
issued stock option grants, that would have otherwise expired within ninety days
of his retirement date, to expire on the termination of Mr. Wellek's Consulting
Agreement.
PENSION PLANS
Effective January 1, 1986, the Company instituted the Varlen Profit Sharing
& Retirement Savings Plan (the "401(k) Plan"), a defined contribution plan, in
which Mr. Jean, Mr. Hoffman, Mr. Nunemaker and Ms. Casmere are participants. The
Company also maintains the Supplemental Executive Retirement Plan of Varlen
Corporation and its Participating Subsidiaries (the "SERP Plan") and the Varlen
Corporation Excess Benefits Plan (the "Shadow 401(k) Plan") in which Mr. Jean,
Mr. Hoffman, Mr. Nunemaker and Ms. Casmere participate.
The following table sets forth, where applicable, the current covered
compensation under each plan and the total number of years of credited service
for benefit plan purposes for Mr. Jean, Mr. Hoffman, Mr. Nunemaker and Ms.
Casmere. Covered compensation under the plans consists of total cash
compensation, except that the 401(k) Plan is limited by law to $160,000 in
calendar 1998 and 1999. Under the
13
<PAGE>
SERP Plan, bonuses are attributed to the year they are earned instead of the
year they are paid. Amounts paid in lieu of dividends under the Deferred
Incentive Stock Purchase Plan are excluded from compensation under the SERP and
Shadow 401(k) plans.
<TABLE>
<CAPTION>
COVERED COMPENSATION
---------------------------------- CREDITED
SERP SHADOW SERVICE
NAME 401(K) PLAN 401(K) TO DATE
- --------------------------------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Raymond A. Jean................................................ $ 160,000 $ 684,367 $ 684,367 11 years
George W. Hoffman.............................................. 160,000 241,826 241,826 19 years
Richard A. Nunemaker........................................... 160,000 379,311 379,311 13 years
Vicki L. Casmere............................................... 160,000 234,708 234,708 2 Years
</TABLE>
The 401(k) Plan is maintained for the benefit of all eligible salaried and
certain hourly employees of the Company and its participating subsidiaries,
including the officers mentioned above. The eligibility requirement of the
401(k) Plan is six months of continuous service. The Employee Retirement Income
Security Act of 1974 places certain limitations on amounts contributed under the
401(k) Plan.
The 401(k) Plan provides for both employee and employer contributions.
Employees may contribute up to 14% of total cash compensation during the
calendar year, subject to certain limitations under Federal income tax law
($10,000 in calendar 1998 and 1999). Amounts contributed by an employee are not
subject to income tax until the funds are withdrawn from the plan. Employer
contributions are divided into two parts. First, the Company pays 25% of the
amount contributed by the employee, up to 6% of total compensation. Second,
there is a profit sharing contribution made to the account of each participant
regardless of whether any employee contributions are made. The profit sharing
contribution cannot be less than 2% of compensation per year and may be higher,
based on the financial performance of the Company and established guidelines.
Participants are immediately 100% vested with respect to their own
contributions and any matching contributions. Profit sharing contributions are
subject to a vesting schedule under which the participant becomes 40% vested
after two years of service. An additional 20% vests after each additional year
of service thereafter until the participant becomes 100% vested after 5 years of
service. The vested portion of the participant's account balance becomes payable
in a lump sum or in installments upon the earliest to occur of retirement,
disability, death or termination of employment.
Effective January 1, 1988, the Shadow 401(k) Plan was instituted to provide
additional benefits to certain executives, as determined by the Board of
Directors. In this funded plan, benefits are earned based on the application of
any or all three IRS limitations with respect to the 401(k) Plan. Participants'
Shadow 401(k) Plan accounts are credited with matching contributions or
discretionary profit sharing contributions which are disallowed from the 401(k)
Plan because of the limit on individual contributions ($10,000 in calendar
1998), the limit on covered compensation ($160,000 in calendar 1998), or the
limit on total contributions of $30,000 or 25% of compensation from all sources.
Account balances are adjusted for investment earnings or losses quarterly and
all benefits earned are subject to the same vesting and payment schedule as is
applied to the 401(k) Plan.
The SERP Plan is an unfunded plan designed to provide supplemental
retirement benefits to certain executives selected by the Board of Directors. At
age 62 with 15 years of service, the executive is entitled upon retirement to
full supplemental retirement benefits which, when added to the executive's total
annual retirement benefit, equals 50% of the average of the five highest years
of the final ten years of covered compensation. Any such executive may retire at
age 55 or any age thereafter prior to age 62 with at least 15 years of service
with reduced benefits. Executives with less than 15 years of service can also
retire at age 62
14
<PAGE>
or thereafter with reduced benefits. To compute the reduced benefits, the 50%
factor is reduced by 3.3% for each year of service less than the required 15
years at age 62, and for each year of retirement prior to age 62.
The following table sets forth the annual retirement benefit payable under
the SERP Plan to participants retiring at age 62 in 1996. These benefits will be
reduced by any profit sharing benefits from the 401(k) Plan or the Shadow 401(k)
Plan, Company funded retirement benefits from prior pension plans and 50% of
primary Social Security benefits. Benefits are unreduced for retirement starting
at age 62, with 15 years of credited service.
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR GIVEN YEARS OF SERVICE
----------------------------------------------
COVERED COMPENSATION 15 20 25 30
- ----------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 150,000............................................ $ 75,000 $ 75,000 $ 75,000 $ 75,000
200,000............................................ 100,000 100,000 100,000 100,000
250,000............................................ 125,000 125,000 125,000 125,000
300,000............................................ 150,000 150,000 150,000 150,000
350,000............................................ 175,000 175,000 175,000 175,000
400,000............................................ 200,000 200,000 200,000 200,000
450,000............................................ 225,000 225,000 225,000 225,000
500,000............................................ 250,000 250,000 250,000 250,000
550,000............................................ 275,000 275,000 275,000 275,000
600,000............................................ 300,000 300,000 300,000 300,000
650,000............................................ 325,000 325,000 325,000 325,000
700,000............................................ 350,000 350,000 350,000 350,000
</TABLE>
The SERP Plan also contains optional methods of benefit payment, payments to
the surviving beneficiary of an employee and other qualifications to the
foregoing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Lorch, Miles and Rosenbaum, all independent directors, comprise the
Company's Compensation Committee.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
ownership of shares of the Company's Common Stock by (i) persons who were the
beneficial owners, as of April 1, 1999, of more than 5% of the outstanding
shares of the Company's Common Stock and (ii) the Company's five most highly
compensated executive officers.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF 5% BENEFICIAL OWNER OWNED CLASS
- ------------------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Theodore A. Ruppert, as trustee........................................................... 974,423(1) 5.7%
One Barclay Woods Drive
St. Louis, Missouri 63124
Lazard Freres & Co. LLC................................................................... 963,819 5.7%
30 Rockefeller Plaza
New York, New York 10020
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT OF
NAME OF EXECUTIVE OFFICER OWNED CLASS
- ------------------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Raymond A. Jean........................................................................... 156,357(2) 0.9%
George W. Hoffman......................................................................... 74,731(3) 0.4%
Richard A. Nunemaker...................................................................... 58,142(4) 0.3%
Vicki L. Casmere.......................................................................... 4,725(5) *
</TABLE>
- ------------------------
* The number of shares of Common Stock beneficially owned is less than .1% of
class.
(1) Such shares are held by several trusts, each of which Mr. Ruppert is one of
the trustees. The trusts are for the benefit of Berenice T. Ruppert and
members of her family. Excludes 11,248 shares held directly by Theodore A.
Ruppert.
(2) Of such shares, 46,983 are deemed to be beneficially owned by Mr. Jean
because he is the sole trustee of a trust of which he is the sole
beneficiary, 107,724 are deemed to be beneficially owned by Mr. Jean solely
because of the existence of currently exercisable options to acquire such
shares and 1,650 are deemed to be beneficially owned because they are held
as a custodian for the benefit of his daughter.
(3) Of such shares, 28,340 are held directly and 46,391 are deemed to be
beneficially owned solely because of his ownership of currently exercisable
options to acquire such shares.
(4) Of such shares, 23,682 are held directly and 34,460 are deemed to be
beneficially owned solely because of his ownership of currently exercisable
options to acquire such shares.
(5) Deemed to be beneficially owned solely because of her ownership of currently
exercisable options to acquire such shares.
16
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors of the Company intends to appoint, subject to final
proposal acceptance, the firm of Deloitte & Touche LLP as its independent
auditors for the fiscal year ending January 31, 2000. Deloitte & Touche LLP
served in such capacity for the Company's preceding fiscal year. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting of Stockholders and will be given an opportunity to make a statement if
he desires to do so and is expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which are to
be brought before the meeting. If any other matters should be presented for
proper action, it is the intention of the persons named in the Proxy to vote in
accordance with their discretion pursuant to the terms of the Proxy.
PROPOSALS OF STOCKHOLDERS
Any stockholder proposals must have been received by the Company by March 3,
1999 to be presented at the 1999 Annual Meeting of Stockholders. Proposals of
stockholders intended to be presented at the 2000 Annual Meeting of Stockholders
must be received at the Company's executive offices on or before December 18,
1999 in order to be considered for inclusion in the Company's Proxy Statement.
Any stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company at its executive offices between
February 11, 2000 and March 2, 2000.
VARLEN CORPORATION
By RAYMOND A. JEAN
President and Chief
Executive Officer
It is important that Proxies be returned promptly. Therefore, stockholders
who do not expect to attend the meeting in person are urged to fill in, sign,
date and return the enclosed Proxy.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999, filed with the Securities and Exchange Commission, may be
obtained without charge by any stockholder of the Company of record as of April
1, 1999 by writing to: Mr. Richard A. Nunemaker, Vice President, Finance and
Chief Financial Officer, Varlen Corporation, 55 Shuman Boulevard, P.O. Box 3089,
Naperville, Illinois 60566-7089.
17
<PAGE>
EXHIBIT 2
VARLEN CORPORATION
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
June 7, 1999
To Our Stockholders:
On May 18, 1999, a subsidiary of Amsted Industries Incorporated ("Amsted")
announced a tender offer (the "Amsted Offer") for all of the Company's
outstanding Common Stock, together with the associated Preferred Share Purchase
Rights, at a price of $35 per share in cash. On May 24, 1999, Amsted formally
commenced the Amsted Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE AMSTED OFFER IS
INADEQUATE AND NOT IN THE BEST INTERESTS OF THE COMPANY OR ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU REJECT THE
AMSTED OFFER AND NOT TENDER YOUR SHARES TO AMSTED.
In reaching the determination that the Amsted Offer is inadequate and not in
the best interests of Varlen or its stockholders, your Board gave careful
consideration to a number of factors, including the opinion of the Company's
financial advisors, Morgan Stanley & Co. Incorporated ("Morgan Stanley"), that
the Amsted Offer is inadequate from a financial point of view. The other factors
considered by your Board are described in the attached Schedule 14D-9.
Your Board also unanimously determined that Varlen should explore its
strategic alternatives, including a merger, sale or recapitalization of Varlen,
which alternatives could include negotiations with interested parties, including
Amsted. In the context of those negotiations, the Board believes interested
parties will recognize the strong business potential of Varlen.
The enclosed Schedule 14D-9 describes your Board's decision to reject the
Amsted Offer and contains other important information. We urge you to read it
carefully in its entirety, including the opinion of Morgan Stanley.
If you have any questions or require assistance, please call MacKenzie
Partners, Inc. toll-free at (800) 322-2885 or at (212) 929-5500 (collect).
Your Directors thank you for your support.
On Behalf of the Board of Directors
Sincerely,
/s/ R. A. Jean
Raymond A. Jean
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 3
VARLEN BOARD OF DIRECTORS REJECTS
AMSTED'S UNSOLICITED TENDER OFFER AS INADEQUATE
-- VARLEN BOARD AUTHORIZES EXPLORATION OF STRATEGIC ALTERNATIVES --
NAPERVILLE, Ill., June 7, 1999 -- Varlen Corporation (Nasdaq: VRLN) today
announced that its Board of Directors unanimously has determined that the
unsolicited cash tender offer by Amsted Industries Incorporated for all of
the outstanding shares of Varlen for $35.00 per share is inadequate and not
in the best interests of its stockholders, and therefore unanimously
recommends that Varlen's stockholders reject the Amsted offer and not tender
their shares to Amsted.
The Varlen Board also unanimously determined that Varlen should explore its
strategic alternatives, including a potential merger, sale or
recapitalization of Varlen. The Varlen Board said those alternatives could
include negotiations with interested parties, including Amsted. In the
context of those negotiations, the Varlen Board believes interested parties
will recognize the strong business potential of Varlen.
In reaching its determination and recommendation, the Board considered a
number of factors, which included:
-- The presentations by Varlen's financial adviser, Morgan Stanley Dean
Witter, concerning Varlen and the financial aspects of the Amsted offer
as well as the oral and written opinions of Morgan Stanley that the
Amsted offer is inadequate, from a financial point of view, to Varlen's
stockholders, other than Amsted.
-- Information provided by Morgan Stanley relating to the preliminary
exploratory discussions conducted by Varlen and its financial advisers
with a number of parties as part of the evaluation of the Amsted offer.
-- The Board's determination to explore strategic and financial
alternatives which have the potential of resulting in a value for shares
of Varlen common stock in excess of the Amsted offer.
-- Varlen's seven consecutive year-over-year quarterly improvements in
sales, operating profits and earnings, including record financial
performance in the first quarter of 1999. During the first quarter of
1999, compared to the prior-year period, sales increased 17.4 percent on
strong demand and increased penetration by Varlen's vehicular products
and railroad products segments; operating profits grew 21.1 percent on
higher sales and solid operating leverage; and net earnings rose 31.6
percent.
-- The Board's recognition of Varlen's excellent financial condition,
results of operations and business performance, including Varlen's
ability to outperform its key end markets of automotive, heavy-duty
truck/trailer and railroad products, Varlen's numerous international
opportunities and Varlen's superior product programs with significant
sales potential.
Raymond A. Jean, President and Chief Executive Officer, said "The Board takes
its responsibilities very seriously. Varlen will continue to explore
strategic and financial alternatives to the Amsted offer and will continue
exploratory discussions with a number of parties regarding potential
strategic alternatives available to Varlen. These discussions could lead to
negotiations with one or more potential parties with respect to a potential
strategic transaction."
Varlen also announced today that it is filing with the Securities and
Exchange Commission, and will mail to stockholders, a
Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the
Company's formal recommendation with respect to Amsted's inadequate offer.
Additional information with respect to the Board's decision to recommend that
shareholders reject the Amsted offer and the matters considered by the Board
in reaching such decision is contained in the Schedule 14D-9.
Varlen is a leading manufacturer of precision-engineered transportation
products for the heavy-duty truck/trailer, automotive and railroad
industries, and of petroleum analyzers. The company, headquartered in a
Chicago suburb, manufactures products in 28 facilities in the United States
and Europe and sells them to customers around the world. Varlen's common
stock is traded on Nasdaq's National Market under the symbol VRLN.
This news release contains forward-looking statements that are based on
assumptions about a number of important factors and involve risks and
uncertainties that could cause actual results to differ materially from what
appears here. These risk factors include reversal of market trends, decreased
demand for products, loss of key customers, limited customer production due
to capacity constraints, and additional factors that may be detailed from
time to time in Varlen's Securities and Exchange Commission filings. Varlen
assumes no obligation to update its forward-looking statements.
-2-
<PAGE>
EXHIBIT 4
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------------------X
GOLDPLATE HOLDINGS, INC., :
:
:
PLAINTIFF, :
:
- AGAINST - : CIVIL ACTION NO. 17172NC
:
ERNEST H. LORCH, RICHARD L. WELLEK, :
RAYMOND A. JEAN, L. WILLIAM MILES, GREG :
A. ROSENBAUM, JOSEPH J. ROSS, THEODORE :
A. RUPPERT AND VARLEN CORPORATION, :
:
DEFENDANTS. :
:
- --------------------------------------------------X
CLASS ACTION COMPLAINT
Plaintiff, by its attorneys, Rosenthal, Monhait, Gross & Goddess,
P.A., for its complaint against defendants, alleges upon information and belief,
except for paragraph 2 hereof, which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of
the Court of Chancery on its behalf and as a class action on behalf of all
persons, other than defendants and those in privity with them, who own the
common stock of Varlen Corporation ("Varlen" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company
since prior to the transaction herein complained of and continuously to date.
3. Defendant Varlen is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a leading manufacturer
of precision engineered
<PAGE>
transportation products for the railroad, heavy duty truck/trailer and
automotive industries, and of petroleum analyzers. The Company maintains its
headquarters at 55 Shuman Boulevard, Naperville, Illinois.
4. Defendant Ernest H. Lorch is Senior Chairman of the Company's
Board of Directors.
5. Defendant Richard L. Wellek is Chairman of the Board of
Directors of the Company.
6. Defendant Raymond A. Jean, is and was at all relevant times the
President, Chief Executive Officer and a Director of Varlen.
7. Defendants L. William Miles, Greg A. Rosenbaum, Joseph J. Ross
and Theodore A. Ruppert and were at all relevant times directors of Varlen.
8. The Individual Defendants named in paragraphs 4 through 7 are
in a fiduciary relationship with the plaintiff and the other public stockholders
of Varlen and owe them the highest obligations of good faith, due dare, candor
and fair dealing.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action on its own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein (the "Class").
10. This action is properly maintainable as a class action.
-2-
<PAGE>
11. The Class is so numerous that joinder of all members is
impracticable. As of April 1, 1999, there were approximately 17,010,934 shares
of Varlen common stock outstanding, owned by shareholders located throughout the
country.
12. There are questions of law and fact which are common to the
Class including, INTER ALIA, the following: (a) whether defendants have
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the Class; (b) whether defendants are unlawfully impeding a
takeover attempt and improperly seeking to entrench themselves in their own
positions at the expense of the public shareholders of Varlen; (c) whether
defendants' actions hereinafter described, constitute a breach of the duty of
fair dealing with respect to the plaintiff and the other members of the Class,
and a failure to maximize shareholder value; and (d) whether the Class is
entitled to injunctive relief or damages as a result of the wrongful conduct
committed by defendants.
13. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the Class and
plaintiff has the same interests as the other members of the Class. Plaintiff
will fairly and adequately represent the Class.
14. Defendants have acted in a manner which affects plaintiff and
all members of the Class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
15. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for defendants, or adjudications with respect
-3-
<PAGE>
to individual members of the Class which would, as a practical matter, be
dispositive of the interests of other members or substantially impair or impede
their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
16. AMSTED Industries, Inc. ("AMSTED") is a diversified
manufacturer of products for the rail, construction and building and general
industrial markets and, like Varlen, a leading manufacturer for the rail, truck
and auto component industries.
17. On May 18, 1999, AMSTED announced that it intended to commence
a tender offer for all of the outstanding shares of Varlen at $35 per share in
cash. AMSTED also announced that it had secured a financing commitment from
Citibank, N.A. as agent and Salomon Smith Barney as arranger to complete the
transaction. The total value of the proposed transaction, including the
assumption of debt is approximately $700 million.
18. AMSTED's May 18, 1999 press release stated:
AMSTED's Chairman, President and Chief Executive Officer, Arthur W.
Goetschel, said "We are announcing this offer because our requests for
friendly discussions over the past two weeks were repeatedly denied by
Varlen's management and Board of Directors."
19. In response to the announcement of AMSTED's offer, the price of
Varlen stock soared $10 per share from its $25-15/16 close on May 17, 1999 to
$35-15/16 on May 18, 1999.
20. On May 18, 1999, Varlen issued a press release responding to
AMSTED's planned tender offer. Varlen stated that the matter had been referred
it its Board of Directors and that it would make a recommendation to
stockholders no later than ten days after the commencement of AMSTED's tender
offer.
-4-
<PAGE>
21. Varlen has a shareholder's rights plan (the "Rights Plan")
which is triggered whenever a person or group acquires 15 percent or more of
Varlen's common stock. The Rights Plan provides that holders of Varlen common
stock, other than the "acquiring person" are entitled to acquire the common
stock of the "acquiring person" at half its market price.
22. The Rights Plan has a low "trigger" threshold (I.E., 15%) which
would make a takeover of Varlen prohibitively expensive without the Individual
Defendants approval. Thus, the Individual Defendants have absolute discretion
to determine whether an acquisition proposal, even one highly favorable to Class
members, can be effectuated.
23. The Rights Plan pill permits the Individual Defendants to
manipulate the corporate machinery of Varlen, thereby impairing the corporate
democratic process within the Company at the expense and to the detriment of the
Company's common stockholders. The Rights Plan, restrains and impairs the
ability of Varlen stockholders to affect corporate policy, and freely structure
the directorial constituency of the Company. The Rights Plan, INTER ALIA,
impedes shareholder ability to accumulate shares and associate together to
replace incumbent management, oppose any management initiative, or otherwise
affect corporate policy through stockholder resolutions. By effectively
preventing any single party from owning and thereby voting greater than 15% of
the outstanding common shares, management clearly has a significant advantage in
any proxy contest which might threaten to eliminate or diminish their control
over Varlen. The Rights Plan thereby serves to perpetuate senior management's
control over the business and operations of the Company and to frustrate
potential bidders for Varlen.
24. Defendants have refused to fulfill their fiduciary duties to
Varlen's public shareholders and consider all bona fide offers for the Company.
Defendants, in an attempt to
-5-
<PAGE>
entrench themselves in their positions and offices with the Company, have placed
their own interests ahead of the interests of Varlen's public shareholders.
25. Defendants' refusal to negotiate has deprived and will continue
to deprive the Company's public shareholders of the very substantial premium
which AMSTED is prepared to pay.
26. Moreover, defendants have refused to take those steps necessary
to ensure that the Company's shareholders will receive maximum value for their
shares of Varlen stock. Defendants have refused to seriously consider the
pending AMSTED offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
27. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Varlen's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Varlen's common stock.
28. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and will succeed
in their plan to entrench themselves and deprive the Class of the opportunity to
maximize the value of their Varlen holdings either in a transaction with AMSTED
or some other BONA FIDE offeror, all to the irreparable harm of the Class.
29. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
-6-
<PAGE>
1) cooperate fully with any person or entity, having a BONA
FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company by
AMSTED;
2) undertake an appropriate evaluation of Varlen's worth as
a merger/acquisition candidate;
3) take all appropriate steps to enhance Varlen's value and
attractiveness as a merger/acquisition candidate;
4) take all appropriate steps to effectively expose Varlen
to the marketplace in an effort to create an active auction for Varlen;
C. directing the Individual Defendants to deploy Varlen's Rights
Plan in a manner that will produce the best value maximizing transaction for
Varlen shareholders;
D. ordering the individual defendants, jointly and severally, to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
-7-
<PAGE>
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS GODDESS,
P.A.
By:
-------------------------------
Suite 1401, Mellon Bank Center
P.0. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ, LLP
10 East 40th Street
New York, New York 10016
(212) 779-1414
May 19, 1999
-8-
<PAGE>
EXHIBIT 5
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------------------X
JOHN MCMULLEN, :
:
:
PLAINTIFF, :
:
- AGAINST - : CIVIL ACTION NO. 17180
:
ERNEST H. LORCH, RICHARD L. WELLEK, :
RAYMOND A. JEAN, L. WILLIAM MILES, GREG :
A. ROSENBAUM, JOSEPH J. ROSS, THEODORE :
A. RUPPERT AND VARLEN CORPORATION, :
:
DEFENDANTS. :
:
- --------------------------------------------------X
CLASS ACTION COMPLAINT
Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess,
P.A., for his complaint against defendants, alleges upon information and belief,
except for paragraph 2 hereof, which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the
Court of Chancery on his behalf and as a class action on behalf of all persons,
other than defendants and those in privity with them, who own the common stock
of Varlen Corporation ("Varlen" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company since
prior to the transaction herein complained of and continuously to date.
3. Defendant Varlen is a corporation duly organized and existing under
the laws of the State of Delaware. The Company is a leading manufacturer of
precision engineered
<PAGE>
transportation products for the railroad, heavy duty truck/trailer and
automotive industries, and of petroleum analyzers. The Company maintains its
headquarters at 55 Shuman Boulevard, Naperville, Illinois.
4. Defendant Ernest H. Lorch is Senior Chairman of the Company's Board
of Directors.
5. Defendant Richard L. Wellek is Chairman of the Board of Directors of
the Company.
6. Defendant Raymond A. Jean, is and was at all relevant times the
President, Chief Executive Officer and a Director of Varlen.
7. Defendants L. William Miles, Greg A. Rosenbaum, Joseph J. Ross and
Theodore A. Ruppert and were at all relevant times directors of Varlen.
8. The Individual Defendants named in paragraphs 4 through 7 are in a
fiduciary relationship with the plaintiff and the other public stockholders of
Varlen and owe them the highest obligations of good faith, due dare, candor and
fair dealing.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
security holders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
10. This action is properly maintainable as a class action.
-2-
<PAGE>
11. The Class is so numerous that joinder of all members is
impracticable. As of April 1, 1999, there were approximately 17,010,934 shares
of Varlen common stock outstanding, owned by shareholders located throughout the
country.
12. There are questions of law and fact which are common to the Class
including, INTER ALIA, the following: (a) whether defendants have breached
their fiduciary and other common law duties owed by them to plaintiff and the
members of the Class; (b) whether defendants are unlawfully impeding a takeover
attempt and improperly seeking to entrench themselves in their own positions at
the expense of the public shareholders of Varlen; (c) whether defendants'
actions hereinafter described, constitute a breach of the duty of fair dealing
with respect to the plaintiff and the other members of the Class, and a failure
to maximize shareholder value; and (d) whether the Class is entitled to
injunctive relief or damages as a result of the wrongful conduct committed by
defendants.
13. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff will fairly
and adequately represent the Class.
14. Defendants have acted in a manner which affects plaintiff and all
members of the Class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
15. The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect
-3-
<PAGE>
to individual members of the Class which would, as a practical matter, be
dispositive of the interests of other members or substantially impair or impede
their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
16. AMSTED Industries, Inc. ("AMSTED") is a diversified manufacturer of
products for the rail, construction and building and general industrial markets
and, like Varlen, a leading manufacturer for the rail, truck and auto component
industries.
17. On May 18, 1999, AMSTED announced that it intended to commence a
tender offer for all of the outstanding shares of Varlen at $35 per share in
cash. AMSTED also announced that it had secured a financing commitment from
Citibank, N.A. as agent and Salomon Smith Barney as arranger to complete the
transaction. The total value of the proposed transaction, including the
assumption of debt is approximately $700 million.
18. AMSTED's May 18, 1999 press release stated:
AMSTED's Chairman, President and Chief Executive Officer, Arthur W.
Goetschel, said "We are announcing this offer because our requests
for friendly discussions over the past two weeks were repeatedly
denied by Varlen's management and Board of Directors."
19. The all-cash price, which is above Varlen's all-time high, represents
immediately liquidity to shareholders, a 35% premium over the previous day, May
17, 1999, closing price of $25-15/16 per share and a 50% premium over the last
60-day per share average. Varlen's 60-day trading average of $23.37 is little
changed from its two-year average of $22.68 per share.
20. In response to the announcement of AMSTED's offer, the price of
Varlen stock soared $10 per share from its $25-15/16 close on May 17, 1999 to
$35-15/16 on May 18, 1999.
-4-
<PAGE>
21. On May 18, 1999, Varlen issued a press release responding to AMSTED's
planned tender offer. Varlen stated that the matter had been referred it its
Board of Directors and that it would make a recommendation to stockholders no
later than ten days after the commencement of AMSTED's tender offer.
22. Varlen has a shareholder's rights plan (the "Rights Plan") which is
triggered whenever a person or group acquires 15 percent or more of Varlen's
common stock. The Rights Plan provides that holders of Varlen common stock,
other than the "acquiring person" are entitled to acquire the common stock of
the "acquiring person" at half its market price.
23. The Rights Plan has a low "trigger" threshold (I.E., 15%) which would
make a takeover of Varlen prohibitively expensive without the Individual
Defendants approval. Thus, the Individual Defendants have absolute discretion
to determine whether an acquisition proposal, even one highly favorable to Class
members, can be effectuated.
24. The Rights Plan pill permits the Individual Defendants to manipulate
the corporate machinery of Varlen, thereby impairing the corporate democratic
process within the Company at the expense and to the detriment of the Company's
common stockholders. The Rights Plan, restrains and impairs the ability of
Varlen stockholders to affect corporate policy, and freely structure the
directorial constituency of the Company. The Rights Plan, INTER ALIA, impedes
shareholder ability to accumulate shares and associate together to replace
incumbent management, oppose any management initiative, or otherwise affect
corporate policy through stockholder resolutions. By effectively preventing any
single party from owning and thereby voting greater than 15% of the outstanding
common shares, management clearly has a significant advantage in any proxy
contest which might threaten to eliminate or diminish their control over Varlen.
The Rights Plan
-5-
<PAGE>
thereby serves to perpetuate senior management's control over the business and
operations of the Company and to frustrate potential bidders for Varlen.
25. Defendants have refused to fulfill their fiduciary duties to Varlen's
public shareholders and consider all bona fide offers for the Company.
Defendants, in an attempt to entrench themselves in their positions and offices
with the Company, have placed their own interests ahead of the interests of
Varlen's public shareholders.
26. Defendants' refusal to negotiate has deprived and will continue to
deprive the Company's public shareholders of the very substantial premium which
AMSTED is prepared to pay.
27. Moreover, defendants have refused to take those steps necessary to
ensure that the Company's shareholders will receive maximum value for their
shares of Varlen stock. Defendants have refused to seriously consider the
pending AMSTED offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
28. On May 24, 1999, AMSTED began its $35 per share cash tender offer for
all the outstanding common stock of Varlen.
29. As a result of the actions of the Individual Defendants, plaintiff
and the other members of the Class have been and will be damaged in that they
have not and will not receive their fair proportion of the value of Varlen's
assets and businesses and/or have been and will be prevented from obtaining a
fair and adequate price for their shares of Varlen's common stock.
30. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and will succeed in
their plan to entrench themselves
-6-
<PAGE>
and deprive the Class of the opportunity to maximize the value of their Varlen
holdings either in a transaction with AMSTED or some other BONA FIDE offeror,
all to the irreparable harm of the Class.
31. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
1) cooperate fully with any person or entity, having a BONA
FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company by
AMSTED;
2) undertake an appropriate evaluation of Varlen's worth as a
merger/acquisition candidate;
3) take all appropriate steps to enhance Varlen's value and
attractiveness as a merger/acquisition candidate;
4) take all appropriate steps to effectively expose Varlen to
the marketplace in an effort to create an active auction for Varlen;
C. directing the Individual Defendants to deploy Varlen's Rights
Plan in a manner that will produce the best value maximizing transaction for
Varlen shareholders;
D. ordering the individual defendants, jointly and severally, to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
-7-
<PAGE>
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS GODDESS,
P.A.
By:
-------------------------------
Suite 1401, Mellon Bank Center
P.0. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
ABBEY GARDY & SQUITIERI LLP
212 East 39th Street
New York, New York 10016
(212) 889-3700
May 24, 1999
-8-
<PAGE>
EXHIBIT 6
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------------------X
DOMINIC GALLUSCIO, :
:
:
PLAINTIFF, :
:
- AGAINST - : CIVIL ACTION NO. 17181NC
:
ERNEST H. LORCH, RICHARD L. WELLEK, :
RAYMOND A. JEAN, L. WILLIAM MILES, GREG :
A. ROSENBAUM, JOSEPH J. ROSS, THEODORE :
A. RUPPERT AND VARLEN CORPORATION, :
:
DEFENDANTS. :
:
- --------------------------------------------------X
CLASS ACTION COMPLAINT
Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess,
P.A., for his complaint against defendants, alleges upon information and belief,
except for paragraph 2 hereof, which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules
of the Court of Chancery on his behalf and as a class action on behalf of all
persons, other than defendants and those in privity with them, who own the
common stock of Varlen Corporation ("Varlen" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company
since prior to the transaction herein complained of and continuously to date.
3. Defendant Varlen is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a leading manufacturer
of precision engineered
<PAGE>
transportation products for the railroad, heavy duty truck/trailer and
automotive industries, and of petroleum analyzers. The Company maintains its
headquarters at 55 Shuman Boulevard, Naperville, Illinois.
4. Defendant Ernest U. Lorch is Senior Chairman of the Company's
Board of Directors.
5. Defendant Richard L. Wellek is Chairman of the Board of
Directors of the Company.
6. Defendant Raymond A. Jean, is and was at all relevant times the
President, Chief Executive Officer and a Director of Varlen.
7. Defendants L. William Miles, Greg A. Rosenbaum, Joseph J. Ross
and Theodore A. Ruppert and were at all relevant times directors of Varlen.
8. The Individual Defendants named in paragraphs 4 through 7 are
in a fiduciary relationship with the plaintiff and the other public stockholders
of Varlen and owe them the highest obligations of good faith, due dare, candor
and fair dealing.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein (the "Class").
10. This action is properly maintainable as a class action.
-2-
<PAGE>
11. The Class is so numerous that joinder of all members is
impracticable. As of April 1, 1999, there were approximately 17,010,934 shares
of Varlen common stock outstanding, owned by shareholders located throughout the
country.
12. There are questions of law and fact which are common to the
Class including, INTER ALIA, the following: (a) whether defendants have
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the Class; (b) whether defendants are unlawfully impeding a
takeover attempt and improperly seeking to entrench themselves in their own
positions at the expense of the public shareholders of Varlen; (c) whether
defendants' actions hereinafter described, constitute a breach of the duty of
fair dealing with respect to the plaintiff and the other members of the Class,
and a failure to maximize shareholder value; and (d) whether the Class is
entitled to injunctive relief or damages as a result of the wrongful conduct
committed by defendants.
13. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the Class and
plaintiff has the same interests as the other members of the Class. Plaintiff
will fairly and adequately represent the Class.
14. Defendants have acted in a manner which affects plaintiff and
all members of the Class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
15. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for defendants, or adjudications with respect
-3-
<PAGE>
to individual members of the Class which would, as a practical matter, be
dispositive of the interests of other members or substantially impair or impede
their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
16. AMSTED Industries, Inc. ("AMSTED") is a diversified
manufacturer of products for the rail, construction and building and general
industrial markets and, like Varlen, a leading manufacturer for the rail, truck
and auto component industries.
17. On May 18, 1999, AMSTED announced that it intended to commence
a tender offer for all of the outstanding shares of Varlen at $35 per share in
cash. AMSTED also announced that it had secured a financing commitment from
Citibank, N.A. as agent and Salomon Smith Barney as arranger to complete the
transaction. The total value of the proposed transaction, including the
assumption of debt is approximately $700 million.
18. AMSTED's May 18, 1999 press release stated:
AMSTED's Chairman, President and Chief Executive Officer, Arthur W.
Goetschel, said "We are announcing this offer because our requests for
friendly discussions over the past two weeks were repeatedly denied by
Varlen's management and Board of Directors."
19. The all-cash price, which is above Varlen's all-time high,
represents immediately liquidity to shareholders, a 35% premium over the
previous day, May 17, 1999, closing price of $25-15/16 per share and a 50%
premium over the last 60-day per share average. Varlen's 60-day trading average
of $23.37 is little changed from its two-year average of $22.68 per share.
20. In response to the announcement of AMSTED'S offer, the price of
Varlen stock soared $10 per share from its $25-15/16 close on May 17, 1999 to
$35-15/16 on May 18, 1999.
-4-
<PAGE>
21. On May 18, 1999, Varlen issued a press release responding to
AMSTED's planned tender offer. Varlen stated that the matter had been referred
it its Board of Directors and that it would make a recommendation to
stockholders no later than ten days after the commencement of AMSTED's tender
offer.
22. Varlen has a shareholder's rights plan (the "Rights Plan")
which is triggered whenever a person or group acquires 15 percent or more of
Varlen's common stock. The Rights Plan provides that holders of Varlen common
stock, other than the "acquiring persons" are entitled to acquire the common
stock of the "acquiring person" at half its market price.
23. The Rights Plan has a low "trigger" threshold (I.E., 15%) which
would make a takeover of Varlen prohibitively expensive without the Individual
Defendants approval. Thus, the Individual Defendants have absolute discretion
to determine whether an acquisition proposal, even one highly favorable to Class
members, can be effectuated.
24. The Rights Plan pill permits the Individual Defendants to
manipulate the corporate machinery of Varlen, thereby impairing the corporate
democratic process within the Company at the expense and to the detriment of the
Company's common stockholders. The Rights Plan, restrains and impairs the
ability of Varlen stockholders to affect corporate policy, and freely structure
the directorial constituency of the Company. The Rights Plan, INTER ALIA,
impedes shareholder ability to accumulate shares and associate together to
replace incumbent management, oppose any management initiative, or otherwise
affect corporate policy through stockholder resolutions. By effectively
preventing any single party from owning and thereby voting greater than 15% of
the outstanding common shares, management clearly has a significant advantage in
any proxy contest which might threaten to eliminate or diminish their control
over
-5-
<PAGE>
Varlen. The Rights Plan thereby serves to perpetuate senior management's
control over the business and operations of the Company and to frustrate
potential bidders for Varlen.
25. Defendants have refused to fulfill their fiduciary duties to
Varlen's public shareholders and consider all bona fide offers for the Company.
Defendants, in an attempt to entrench themselves in their positions and offices
with the Company, have placed their own interests ahead of the interests of
Varlen's public shareholders.
26. Defendants' refusal to negotiate has deprived and will continue
to deprive the Company's public shareholders of the very substantial premium
which AMSTED is prepared to pay.
27. Moreover, defendants have refused to take those steps necessary
to ensure that the Company's shareholders will receive maximum value for their
shares of Varlen Stock. Defendants have refused to seriously consider the
pending AMSTED offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
28. On May 24, 1999, AMSTED began its $35 per share cash tender
offer for all the outstanding common stock of Varlen.
29. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Varlen's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Varlen's common stock.
30. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and will succeed
in their plan to entrench themselves and deprive the
-6-
<PAGE>
Class of the opportunity to maximize the value of their Varlen holdings either
in a transaction with AMSTED or some other BONA fIDE offeror, all to the
irreparable harm of the Class.
31. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
1) cooperate fully with any person or entity, having a BONA
FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company by
AMSTED;
2) undertake an appropriate evaluation of Varlen's worth as
a merger/acquisition candidate;
3) take all appropriate steps to enhance Varlen's value and
attractiveness as a merger/acquisition candidate;
4) take all appropriate steps to effectively expose Varlen
to the marketplace in an effort to create an active auction for Varlen;
C. directing the Individual Defendants to deploy Varlen's Rights
Plan in a manner that will produce the best value maximizing transaction for
Varlen shareholders;
D. ordering the individual defendants, jointly and severally, to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
-7-
<PAGE>
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS & GODDESS,
P.A.
By:
------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
FARUQI & FARUQI LLP
415 Madison Avenue
New York, New York 10017
(212) 986-1074
May 25, 1999
-8-
<PAGE>
EXHIBIT 7
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------------------X
BRETT STOVERN, :
:
PLAINTIFF, :
- AGAINST - : CIVIL ACTION NO. 17182NC
:
ERNST H. LORCH, RICHARD L. WELLEK, :
RAYMOND A. JEAN, L. WILLIAM MILES, GREG :
A. ROSENBAUM, JOSEPH J. ROSS, THEODORE A. :
RUPPERT AND VARLEN CORPORATION, :
:
DEFENDANTS. :
:
- --------------------------------------------------X
CLASS ACTION COMPLAINT
Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess,
P.A., for his complaint against defendants, alleges upon information and belief,
except for paragraph 2 hereof, which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules
of the Court of Chancery on his behalf and as a class action on behalf of all
persons, other than defendants and those in privity with them, who own the
common stock of Varlen Corporation ("Varlen" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company
since prior to the transaction herein complained of and continuously to date.
3. Defendant Varlen is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a leading manufacturer
of precision engineered transportation products for the railroad, heavy duty
truck/trailer and automotive industries, and of petroleum analyzers. The Company
maintains its headquarters at 55 Shuman Boulevard, Naperville, Illinois.
4. Defendant Ernest H. Lorch is Senior Chairman of the Company's
Board of Directors.
<PAGE>
5. Defendant Richard L. Wellek is Chairman of the Board of
Directors of the Company.
6. Defendant Raymond A. Jean, is and was at all relevant times the
President, Chief Executive Officer and a Director of Varlen.
7. Defendants L. William Miles, Greg A. Rosenbaum, Joseph J. Ross
and Theodore A. Ruppert and were at all relevant times directors of Varlen.
8. The Individual Defendants named in paragraphs 4 through 7 are
in a fiduciary relationship with the plaintiff and the other public stockholders
of Varlen and owe them the highest obligations of good faith, due dare, candor
and fair dealing.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein (the "Class").
10. This action is properly maintainable as a class action.
11. The Class is so numerous that joinder of all members is
impracticable. As of April 1, 1999, there were approximately 17,010,934 shares
of Varlen common stock outstanding, owned by shareholders located throughout the
country.
12. There are questions of law and fact which are common to the
Class including, INTER ALIA, the following: (a) whether defendants have breached
their fiduciary and other common law duties owed by them to plaintiff and the
members of the Class; (b) whether defendants are unlawfully impeding a takeover
attempt and improperly seeking to entrench themselves in their own positions at
the expense of the public shareholders of Varlen; (c) whether defendants'
actions hereinafter described, constitute a breach of the duty of fair dealing
with respect to the plaintiff and the other members of the Class, and a failure
to maximize shareholder value; and (d) whether the Class is entitled to
injunctive relief or damages as a result of the wrongful conduct committed by
defendants.
13. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of
-2-
<PAGE>
other members of the Class and plaintiff has the same interests as the other
members of the Class. Plaintiff will fairly and adequately represent the Class.
14. Defendants have acted in a manner which affects plaintiff and
all members of the Class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
15. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for defendants, or adjudications with respect to individual
members of the Class which would, as a practical matter, be dispositive of the
interests of other members or substantially impair or impede their ability to
protect their interests.
SUBSTANTIVE ALLEGATIONS
16. AMSTED Industries, Inc. ("AMSTED") is a diversified
manufacturer of products for the rail, construction and building and general
industrial markets and, like Varlen, a leading manufacturer for the rail, truck
and auto component industries.
17. On May 18, 1999, AMSTED announced that it intended to commence
a tender offer for all of the outstanding shares of Varlen at $35 per share in
cash. AMSTED also announced that it had secured a financing commitment from
Citibank, N.A. as agent and Salomon Smith Barney as arranger to complete the
transaction. The total value of the proposed transaction, including the
assumption of debt is approximately $700 million.
18. AMSTED's May 18, 1999 press release stated:
AMSTED's Chairman, President and Chief Executive Officer, Arthur W.
Goetschel, said "We are announcing this offer because our requests for
friendly discussions over the past two weeks were repeatedly denied by
Varlen's management and Board of Directors."
19. The all-cash price, which is above Varlen's all-time high,
represents immediately liquidity to shareholders, a 35% premium over the
previous day, May 17, 1999, closing price of $25-15/16 per share and a 50%
premium over the last 60-day per share average. Varlen's 60-day trading average
of $23.37 is little changed from its two-year average of $22.68 per share.
20. In response to the announcement of AMSTED's offer, the price of
Varlen stock soared $10 per share from its $25-15/16 close on May 17, 1999 to
$35-15/16 on May 18, 1999.
-3-
<PAGE>
21. On May 18, 1999, Varlen issued a press release responding to
AMSTED's planned tender offer. Varlen stated that the matter had been referred
it its Board of Directors and that it would make a recommendation to
stockholders no later than ten days after the commencement of AMSTED's tender
offer.
22. Varlen has a shareholder's rights plan (the "Rights Plan")
which is triggered whenever a person or group acquires 15 percent or more of
Varlen's common stock. The Rights Plan provides that holders of Varlen common
stock, other than the "acquiring person" are entitled to acquire the common
stock of the "acquiring person" at half its market price.
23. The Rights Plan has a low "trigger" threshold (I.E., 15%) which
would make a takeover of Varlen prohibitively expensive without the Individual
Defendants approval. Thus, the Individual Defendants have absolute discretion to
determine whether an acquisition proposal, even one highly favorable to Class
members, can be effectuated.
24. The Rights Plan pill permits the Individual Defendants to
manipulate the corporate machinery of Varlen, thereby impairing the corporate
democratic process within the Company at the expense and to the detriment of the
Company's common stockholders. The Rights Plan, restrains and impairs the
ability of Varlen stockholders to affect corporate policy, and freely structure
the directorial constituency of the Company. The Rights Plan, INTER ALIA,
impedes shareholder ability to accumulate shares and associate together to
replace incumbent management, oppose any management initiative, or otherwise
affect corporate policy through stockholder resolutions. By effectively
preventing any single party from owning and thereby voting greater than 15% of
the outstanding common shares, management clearly has a significant advantage in
any proxy contest which might threaten to eliminate or diminish their control
over Varlen. The Rights Plan thereby serves to perpetuate senior management's
control over the business and operations of the Company and to frustrate
potential bidders for Varlen.
25. Defendants have refused to fulfill their fiduciary duties to
Varlen's public shareholders and consider all bona fide offers for the Company.
Defendants, in an attempt to entrench themselves in their positions and offices
with the Company, have placed their own interests ahead of the interests of
Varlen's public shareholders.
26. Defendants' refusal to negotiate has deprived and will continue
to deprive the Company's public shareholders of the very substantial premium
which AMSTED is prepared to pay.
-4-
<PAGE>
27. Moreover, defendants have refused to take those steps necessary
to ensure that the Company's shareholders will receive maximum value for their
shares of Varlen stock. Defendants have refused to seriously consider the
pending AMSTED offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
28. On May 24, 1999, AMSTED began its $35 per share cash tender
offer for all the outstanding common stock of Varlen.
29. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Varlen's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Varlen's common stock.
30. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and will succeed
in their plan to entrench themselves and deprive the Class of the opportunity to
maximize the value of their Varlen holdings either in a transaction with AMSTED
or some other BONA FIDE offeror, all to the irreparable harm of the Class.
31. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
1) cooperate fully with any person or entity, having a BONA
FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout of takeover of the Company by
AMSTED;
2) undertake an appropriate evaluation of Varlen's worth as
a merger/acquisition candidate;
3) take all appropriate steps to enhance Varlen's value and
attractiveness as a merger/acquisition candidate;
4) take all appropriate steps to effectively expose Varlen
to the marketplace in an effort to create an active auction for Varlen;
-5-
<PAGE>
C. directing the Individual Defendants to deploy Varlen's Rights
Plan in a manner that will produce the best value maximizing transaction for
Varlen shareholders;
D. ordering the individual defendants, jointly and severally, to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS GODDESS,
P.A.
By:
----------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
WEISS & YOURMAN
551 Fifth Avenue
Suite 1600
The French Building
New York, NY 10176
(212) 682-3025
May 25, 1999
-6-
